HTC financials

‘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.”

Source: HTC


Reader comments

HTC may post first operating loss in Q3, company warns


I'm pulling for them too, but it just continues to look worse and worse for them.

Maybe if they pushed harder for the HTC One to release on Verizon they wouldn't be having so much trouble.

I'd normally take a light-hearted jab at some common fallacies when it comes to HTC related articles on AC: Had they updated their devices like they should, included certain hardware features/capabilities, and give the people what they want, they'd be making billions in profit.

Hopefully someone with a little knowledge about financials can explain how a company can have relatively good sales of their products but still suffer a decrease in profits? I think I saw the same scenario with other smartphone manufactures (last financial report) who had strong sales and still had negative profits.

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Simply put this can mean either or both small margins on products and high cost in other areas (R&D, legal fees etc.)

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"give the people what they want" - and by that you mean the minuscule number of people who are reading and commenting on Android blogs? There is nothing they have not offered that people want. The One X was a great device last year, and while I would agree they had some shortcomings the year before, they were not that bad. The gripes about not using on screen buttons or whatever other hardware complaints you may have do not translate to normal people. Yes HTC should do better about updates, but that too does not translate to real people and by real people I mean the people who are spending money and deciding HTC's fate.

"how a company can have relatively good sales of their products but still suffer a decrease in profits?" - They said it in the article. One reason is clearing out stock on older weaker performing stock. HTC also has problems with scale because they are so much smaller than their competition.

The fact of the matter is, even at their peak, HTC was not well known. They don't have the brand recognition of Samsung, Apple, or even LG and Sony, because all they make are phones. On top of that Samsung has managed to hijack Android's momentum and replace it with Galaxy momentum because of their marketing success.

I love HTC and want them to be a success but it is time for all of us to accept that as long as they are a stand alone company, they are not going to compete. They just can't afford to. They need a partnership with another company not already in the space. (Looking at you Amazon.)

At its peak HTC was EXTREMELY well known and popular. The HTC Evo became the best selling Sprint/Android of all time and ads for the Evo were seen all over the place. It was heavily promoted in all manner of media. The Evo was a most desired device at the time, second only to the iphone.
Today, based on advertising, and visiting stores, the public is aware that the HTC One is available for sale. They see it when they shop in Best Buy, Sprint or in any other store that carries it. The HTC is far from a mystery.
Let's not confuse lack of popularity with not being well known because the HTC One is definitely well known. For whatever reason, it's just not a popular choice with the public.
Also, let's not confuse quantity of exposure as a deciding factor in popularity. It doesn't matter if the public sees 5 ads for the Samsung S4 during a night of television watching and only 1 ad for the HTC One, the public still has seen an ad for the HTC one. I'm pretty sure Mr. General Public doesn't say "Hmm...I think I'll buy the Samsung S4 because I saw more ads for it on TV than the HTC One tonight!"
Quantity doesn't equal quality.

This doesn't take away from the beauty of the HTC one. Even with this news I'd still would have bought the it anyways!

Sent from my HTC One

Agreed. I hope all the pressure on earnings doesn't eventually lead to a deterioration of quality. The industry should follow their lead on build quality.

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Quality pieces of kit and not a 'common' look about them, I hope they are able to live on. Most likely they'll get bought out (I'm sure Samsung / LG can afford to).

Because he does a good job. People do forget companies can survive decades without making a profit.

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Ummm. Just because his company put out a nice phone, does not mean he is doing a good job in the CEO position....

If he was doing a good job, HTC would be making tons of money. HTC has been tanking hard the last 1-2 years. A smart CEO would've seen how much of an impact a strong marketing campaign has done for Samsung and Apple. HTC's marketing is beyond terrible.

Yeah, there are companies that go decades without making a profit: they're called non-profit organizations. If you're a for-profit company and you go decades without making a profit, you're clearly not doing something right. Breaking even is not a good business model.

HTC gambled it's future on the One and it's new product structure. Of course there will be lean times. If they come back in Q1 2014 they'll be fine.

And, btw, Sprint hasn't posted a profitable quarter in how many years? Lol.

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"And, btw, Sprint hasn't posted a profitable quarter in how many years? Lol."

If the other 3 carriers were completely rebuilding ever tower in their network, they might not be making a profit either.

People forget, that earlier this year, HtC were downgraded from a tier one manufacturer, and the economies of scale literary went out the window.
Also, am sure they have a massive stock of unsold one x+, 8x and 8s, seeing as the 8s is being sold at cost (>$300) on ebay

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This is starting to sound like RIM... Except these guys actually have great phones, it's just being eaten away by the 'big guys'.

If HTC doesn't do so good with their next generation of phones, I'm going to Motorola. They've come a long way! I'm not give Samsung anymore of my money!

200 minute milling of aluminum block = time consuming. I don't think aluminum is as cheap as it was a few years ago either, but I may be wrong. The One is beautiful, but how can spending that much time on each phone be beneficial?

Agreed. Must be an extra slap to see Sammy charge more for their (nice in other ways) plastic devices that took second to form. Sammy's laughing all the way to the bank, that's for sure.

Lmaooo HTC spending 200 minutes on a phone when Sammy spends couple minutes with plastic that was true and funny...

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HTC makes wonderful products, and they are going in the right direction finally with the One and One Mini, but their marketing department is just horrible. Where are the commercials for the One? It is the iPhone of the android world stylistically, but no one knows unless they see it.

Add to that the fact that they picked the worst name possible for their flagship device. Last year they released like a dozen or more "One" phones which confused everyone, now they release the One which confuses people even more. Regular folks ask which "One" is the best.. Is it the One X, the One s, etc. It can't be the One, because in the USA we are trained that more letters mean better product. The Mustang isn't as good as the Mustang gt, for example.

You can't compare htc to RIM, however, because it wasn't so much RIM dying as it was the BlackBerry OS being eaten up by the bigger punctuation of ios and Android.

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Omitting Micro SD cards and lackluster battery for One X and other devices IMO is what sealed the coffin for HTC. I think a lot of (not all) Android users like the option of removable storage and a longer lasting battery. HTC marketing also sucks. I have only seen one "HTC ONE" commercial.

I still have not seen anyone using a HTC one or one x. That's in London, Kuala Lumpur and Singapore. Lots of ads everywhere in all 3 countries but everywhere I go (I travel quite a bit), it's all iPhones and Galaxy phones. I even see more LG phones around. Nobody knows who HTC are so the masses won't buy the one. Techies would be stupid to buy it because if you use the phone a lot, a completely sealed battery is a major no no. At least with most other sealed phones there is access to replace the battery at a later date. Also there reluctance to update phones is ridiculous. Love the design of the one, but I'd would never buy it.

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In other words: while the One is a huge hit for HTC, the First (and their midrange & low-end portfolio as a whole) has been a dismal failure. They literally can't get the One Mini and One Maxx out soon enough.