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HTC earnings, sales felled by heavy smartphone competition

The Taiwanese handset maker's first-quarter profit and sales plummet in the wake of an increasingly competitive market and rough economy.

HTC is hoping its new "One" smartphone lineup can revive sales and earnings.
HTC is hoping its new "One" smartphone lineup can revive sales and earnings. Jessica Dolcourt/CNET

Analysts and HTC itself were expecting a weak first quarter, and that's just what the company delivered.

Facing a market virtually locked up by Apple and Samsung, HTC saw its quarterly sales drop to NT$67.8 billion (US$2.3 billion), a decline of almost 35 percent from a year ago. Net profit sunk to NT$4.464 billion (US$151 million), down 70 percent from the prior year's quarter.

Looking at the top five smartphone vendors, IDC recently put HTC in fifth place with a fourth-quarter market share of just 6.5 percent, down from 8.5 percent a year ago despite an increase in shipments. More recently, ComScore gave the company a 6.3 percent share among all mobile phone makers for the three months ending February, again trailing the top four vendors.

HTC had already been anticipating a bad first quarter earlier this year when it forecast a sales drop as high as 36 percent, according to Reuters. But the company has been pegging its problems as "short term," reflective of lagging demand for its traditional and older product lineup.

Analysts and HTC are both eyeing a rebound this year with huge help from the company's new "One" series of mobile phones. Launched at the Mobile World Congress in February, the three "One" phones unveiled offer higher-end specs than those of previous models, including a stronger camera and better multimedia capabilities.

Sanford Bernstein analyst Pierre Ferragu said yesterday that he expects "a significant recovery in sales" from the new phones, which began shipping last month.

"Longer term, we believe HTC is a strong number 3 brand in smartphones," the analyst added. "The scale of Samsung and the success of Apple continue to represent challenges to the company's business model, but we believe HTC is in a strong position to recover from its low point."

Ferragu thinks that that the gap between HTC and its competitors will narrow over the next six months as the company ships the new One series and "triggers a replacement wave amongst HTC's followers."

Yuanta Securities Bonnie Chang echoed the same optimistic outlook, as reported by Reuters.

The analyst noted that HTC's March sales were down from a year ago but showed a healthy gain over February's results. If the company can keep up that momentum, the analyst anticipates a strong second quarter.

Apple and Samsung show no signs of losing their tight grip on the market. But like Ferragu, Chang believes HTC could rebound to at least rival its other competitors.

"Of course, it is very difficult to expect HTC to compete with Apple or Samsung, the market share gap is too big," Chang said. "But if it could catch up with RIM or Nokia, then it's pretty good."