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HTC can't take the heat, warns of rough holiday quarter

The smartphone maker continues to struggle with its attempted turnaround and expects revenue and profitability to fall even further in the fourth quarter.

HTC's new One X+ is its latest flagship smartphone.
Brian Bennett/CNET

HTC today warned that its revenue and profitability will continue to slide in the fourth quarter amid continued pressure in the smartphone business.

The Taiwan-based company, which primarily builds smartphones and some tablets, warned that its revenue will fall 40 percent year over year to 60 billion Taiwan dollars ($2.05 billion). Its gross margins are expected to decline to 23 percent in the period vs. 27.1 percent a year ago.

The results reflect the continued struggles that virtually every handset manufacturer face, with too many competitors scrambling for a piece of a pie that increasingly is getting eaten up by Apple and Samsung Electronics. HTC, which was an early success story with its quick embrace of Google's Android operating system, began to show cracks about a year ago, with further declines in subsequent quarters.

In the third quarter, HTC posted an operating profit of 4.9 billion Taiwan dollars ($167.5 million) on revenue of 70.2 billion Taiwan dollars ($2.4 billion), down 76 percent and 48 percent, respectively, from a year ago. Its net profit fell 79 percent to 3.9 billion Taiwan dollars ($133.3 million).

By contrast, both Apple and Samsung both recently reported large gains in revenue and profit.

HTC, however, is one of the few handset manufacturers still turning a profit, even if its profitability has shrunk. The company has been focusing on fewer, higher-quality devices, something other companies are also emulating, as it looks remove some of the confusion in its product portfolio.

Beyond Android, HTC has also embraced Microsoft's Windows Phone operating system, and its Windows Phone 8X smartphone has been positioned by Microsoft as the flagship launch phone for Windows Phone 8.

At the same time, the company continues to plug away with Android, introducing an upgraded version of its flagship device, the One X+.