HTC: We'll rebound from dismal first quarter

The phone maker argues that the One smartphone family and China are its tickets to a roaring comeback. Analysts are mixed.

HTC One X
The HTC One X. Jessica Dolcourt/CNET

HTC reported a dismal first quarter as expected and projected a rebound courtesy of the smartphone maker's One family. Executives indicated that a solid launch of the HTC X One better reflects the company's competitive position.

The catch? HTC's competitive position will be better known once its new product lineup goes against Samsung's latest Galaxy device and Apple's iPhone 5.

For now, HTC was all about a dreadful first quarter. HTC had foreshadowed that times would be tough. This chart illustrates how tough.


In the second quarter, HTC projected a sequential revenue rebound with revenue of NT$105 billion (US3$3.5 billion) and gross margins of about 27 percent. That projection was in line with consensus estimates, but lower than some analysts expected.

CFO Chialin Chang's presentation homed in on the One X launch (CNET review, T-Mobile version ). Chang's key points:

  • HTC's One family broadly cover the U.S. market with LTE speeds.
  • HTC One and Desire V series bolster the company's position in China.
  • HTC J add to the company's position in Japan.

Deutsche Bank analyst Kc Kao said in a research note:

Management said that the execution of One X models better reflects its competitive position. It also highlighted three qualitative factors it believes should demonstrate its competitive positive in the smartphone space: 1) innovation, brand, technology leadership; 2) customer relationships; 3) high-quality employees.

HTC also emphasized that the importance of the U.S. market is diminishing. The U.S. accounted for 40 percent to 45 percent of HTC sales in 2011. In 2012, Kao estimated that the revenue contribution from the U.S. will be 30 percent to 35 percent due to the iPhone.

Overall, the jury is still out on HTC's rebound. Macquarie analyst Daniel Chang said he expects HTC to move 10 million to 11 million units in the second quarter, which isn't that great considering the company's marketing push.

HTC CEO Peter Chou was upbeat about the company's prospects in China, but Chang wasn't so sure. In a research note, he said:

We agree that China's potential is significant, but are concerned that HTC may be too optimistic and believe it needs time and more marketing effort to build its brand. There are several local 'kings' (Huawei or ZTE) in China while Samsung and Nokia have already established channels as well. We think by the time HTC is ready, the China market will already be very mature with severe competition and lower device profitability. Today, HTC's market share is still low at 2-3% vs. Chinese local brands' combined 30%+ and Samsung's 24% and Nokia's 20%. This implies that Chinese smartphone users either go for low cost phones or a strong brand - neither of which we think HTC has yet in China.

This story originally appeared at ZDNet's Between the Lines under the headline "HTC: One X, China fueled rebound ahead?"

 

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