HTC shares tumbled 10 per cent today (August 7th) – the daily limit – after the company issued a forecast for a loss five times higher than estimates. Shares were down NT$63 (£1.3) in Taipei at the end of the day, closing at their lowest in more than ten years.
The smartphone maker’s third-quarter loss will be NT$5.51 to NT$5.85 per share, compared with analysts' forecasts of a loss of NT$1.17 per share. Meanwhile, the company said that sales this quarter will stand between NT$19 billion and NT$22 billion, compared with estimates for NT$36.8 billion.
“HTC’s multiple model strategy in the past year did not work as planned,” JPMorgan Chase & Co. analyst Narci Chang told Bloomberg. “HTC’s current business model needs a significant makeover.”
Increased global competition
The disappointing results were triggered by "weaker than expected demand at the high end along with weak sales in China", the firm said in a statement. The company is struggling with competition from Apple, Samsung and Chinese rivals.
HTC said it won’t consider mergers, and announced plans to cut staff, reduce spending and trim its product catalogue.
The company's chief financial officer, Chang Chialin, said that HTC will change its product strategy to produce fewer models over longer time intervals while focusing on a greater share of industry profits instead of shipments. He added that cost reductions will start this quarter, with the result of those cuts reflecting in the first quarter of 2016.
However, Anne Lee, an analyst at Nomura who has a sell rating on the stock, told the Financial Times a near-term turnaround was unlikely. "We remain cautious and believe it is challenging for second-tier smartphone brands to remain competitive and turn a profit in a slow smartphone market," she said.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.