‘Higher cost structure, lack of economy of scale’ could lead to first loss in HTC's history
HTC has today released finalized second-quarter financial results, and with it a warning that it may slip into an operating loss during the third quarter. Q2 revenue was reported at NT$70.7 billion ($2.37 billion), with gross margin of 23.2% and operating margin of 1.5%. Net profit was NT$1.25 billion ($40 million), while EPS was NT$1.50 ($0.05). The numbers show little change from HTC’s unaudited figures, released earlier in the month. The company met its own revenue targets, but profits fell by 83 percent year-on-year, and the monthly breakdown showed that revenues fell almost 24 percent from May to June.
Worse still, the company’s Q3 outlook predicts an operating margin of between 0 and -8 percent, suggesting HTC could make first ever loss in the next quarter. HTC blames “relatively higher cost structure, lack of economy of scale and certain provisions needed to facilitate the clearance of aging products in the channel” for its reduced margins. However it pointed out that the HTC One has so far performed strongly, “better than that of our hero products for the same period last year,” adding that its new flagship has helped improve its brand awareness.
HTC also says it plans to release more competitive products in the mid-range space — a likely reference to new devices including the recently-launched HTC One Mini — saying it hopes “to regain momentum and market share in these segments in Q4.”
And that sentiment is echoed in reference to the company’s financial performance. “Actions have been taken,” today’s news release states, “and we expect to see improvement in Q4.”