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Can HTC make a Comeback ?

July 31st, 2013

Can HTC ComebackMobile SmartPhone company HTC guided 3Q revenue of NT$50-60bn, implying a Q/Q decline of 15-29%. HTC also guided OP margin at 0 to -8%. Using midpoint of HTC’s guidance, the 3Q operating loss would reach NT$2.2bn. Historically, we have not seen a handset company stage a successful comeback. Sr. Telecom Analyst at 3g4g.in who penned the demise of Nokia 2 years ago was of the following opinion,

Sony is probably the closest in the mobile handset industry, and it took them ~5 years to make a comeback. Nokia, Blackberry, Motorola and LG are all still struggling while Samsung and Apple take away bulk of the profits in the SmartPhone industry.

Based on our channel checks, initial HTC One sell-through was around 1.2m per month – not great, but ok. However, the overall high-end demand slowdown and Samsung S4 weakness forced Samsung to get more aggressive on marketing dollars to carriers, which in turn forced other vendors such as Sony and LG to follow.

HTC, constrained by more limited resources, was not able to follow, which makes HTC the biggest victim of high-end demand weakness. We estimate HTC’s sell-through has fallen to only 700-800K/month and overall revenue should decline sharply in 3Q. On margin side, we believe that HTC has to get more aggressive on pricing to clear their excess channel inventory.

We believe HTC will continue to strain to reach breakeven for an extended period (suggesting 1x book is already generous). With high-end demand slowing and Apple’s big-screen iPhone likely in mid-2014, next year could be even tougher. We don’t expect any M&A scenarios near-term, as we believe management is intent on staging a comeback.

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