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HTC to counter revenue sag with cheaper phones in China

Peter Chou may be optimistic, but first quarter results for this year are expected to raise little cheer for the company's shareholders. Will offering lower-cost phones in China help?

Red is a fine color for a smartphone, but not for bookkeepers. Sarah Tew/CNET

Taiwanese firm HTC said Monday that it expects profit margins to continue sliding in the wake of increased competition by rival firms including Apple and Samsung.

HTC says that it expects revenue to drop by 17 percent in the three months leading to March 31, based on results from the fourth quarter of 2012, which is worse than forecast by analysts.

The smartphone maker expects first-quarter revenue of between NT$50 billion to NT$60 billion (US$1.69 billion to US$2.03 billion). According to Reuters, this figure is lower than analyst forecasts of NT$62.77 in the first quarter of 2013. HTC also predicts a first-quarter gross profit margin of between 21 percent and 23 percent, which is at best equal to the 23 percent in the fourth quarter of 2012. The company's operating profit margin is expected to be between 0.5 and 1 percent, in comparison to 1 percent in the fourth quarter and 7.5 percent a year ago.

The Taoyuan-based firm has faced increased competition from rivals including Apple and Samsung, as well as the emergence of companies that are also targeting low-end smartphone markets. In an interview with the Wall Street Journal, HTC's CEO Peter Chou acknowledged that the firm performed poorly in 2012, but remained optimistic that this year will be better.

Chou said that competition was "too strong" for the Taiwanese firm -- evident in HTC's profit slide of 79 percent year over year -- but that 2013 "would not be too bad."

"Our competitors were too strong and very resourceful, pouring in lots of money into marketing. We haven't done enough on the marketing front." Chou told the Journal.

According to research firm IDC, HTC lost its spot within the top five smartphone makers as shipments fell by 25 percent last year. In the fourth quarter, HTC is estimated to have only claimed 4.3 percent of total smartphone marketshare.

In a conference call this morning, HTC Chief Financial Officer Chang Chia-Lin told investors that the company will now begin to offer low-end, cheaper smartphone models in order to shore up the balance books. Currently, the cheapest phone available in China is priced at 1,999 yuan ($320), but HTC is willing to go lower in its bid to target emerging markets over the next year.

"We're going to go down, but not below 1,000," Chia-Lin said. "We see there's still room to play."

This story originally appeared at ZDNet's Between the Lines under the headline "HTC predicts further slide in sales in Q1 2013, plans cheaper phones."