Despite weak performance, the balance sheet looks pretty good
HTC shareholders absorbed some pain today as the stock dropped almost 4% on the Taiwan Stock Exchange. The drop followed the company’s release of its Q4 results for 2013 along with a discussion of expected Q1 and 2014 results.
The main reason for the stock’s decline today is probably the Q1 outlook. Revenue guidance is between NT$34 billion and NT$36 billion whereas analysts expected, on average, NT$39.3 billion according to a survey by Bloomberg. The company is also expected to post a wider loss than analysts had been anticipating.
I don’t think there’s any argument that HTC makes very nice phones. But gross margins are really low. For Q1 they’re forecasting just over 21% gross margin, and it’s tough to make a profit on that after subtracting their R&D, selling, general and administrative costs.
That said, Q1 gross margins are expected to rebound from the very weak Q4 levels. This past quarter HTC generated a gross margin of only 17.8%. New phones and new market launches are perhaps helping them boost performance in the current quarter.
Despite the weak performance out of HTC over the past year, the balance sheet still looks pretty good. Their cash balance is even slightly higher than it was last year at NT$53.3 billion, equivalent to US $1.75 billion. This is a pretty good sign that HTC isn’t going anywhere. They’ve got plenty of ammunition to keep fighting in the market.
It’s a strange market though. Samsung is by far the biggest and most financially successful Android vendor of all, and nobody from LG to HTC seems to be able to offer them a run for their money when it comes to volume and profitability. I doubt Lenovo buying the Motorola business is going to change anything.
I’ve said this before, and I’ll say it again. While the other Android players don’t seem to be able to so much as put a dent in Samsung’s performance, they are good to have around in the market. They offer choice, and they keep Samsung on its toes in terms of hardware and software innovation.