HTC Drops on Weak Guidance, Stiff Competition

By Tim Culpan - Feb 7, 2012 11:06 AM GMT+0700

HTC Corp., Asia’s second-largest smartphone maker, fell the most in two months in Taipei trading after forecasting first-quarter revenue that missed analyst estimates as it faces tougher competition in the U.S.

HTC dropped as much as its 6.9 percent daily limit, the most on an intraday basis since Dec. 5, and traded 6.5 percent lower at NT$515 as of 11:31 a.m. in Taipei. Trading volume was double the three-month daily average. Sales this quarter will be NT$65 billion ($2.2 billion) to NT$70 billion, the Taoyuan-based company said yesterday. That’s the lowest since the second quarter of 2010 and below the NT$84.9 billion average of 14 analyst estimates.

Competition from Apple Inc. (AAPL)’s iPhone and Samsung Electronics Co.’s Galaxy models damped demand for HTC devices in the U.S., while sales of faster LTE fourth-generation models didn’t meet expectations, Chief Financial Officer Winston Yung said yesterday. New models will be released next quarter, prompting the weak guidance this period as the company awaits “product transition,” Yung said.

“HTC is likely to lose further economies of scale in manufacturing in 2012 and 2013, as we forecast its shipments for 2012 to decline further to one-third of those of Samsung and Apple, down from half for 2011,” Alex Chang, an analyst at Daiwa Capital Markets in Taipei, wrote in a report today. Daiwa downgraded the stock to “sell” from “hold” and lowered the six-month target price to NT$333.

IPhone 4S

HTC became the largest smartphone maker in the U.S. during the third quarter as consumers awaited the next iPhone model, according to data from researcher Canalys. HTC cut its fourth-quarter sales outlook on Nov. 23 by more than 20 percent, citing competition from the iPhone 4S, which went on sale in October.

Thirteen of 35 analysts tracked by Bloomberg now recommend investors sell the stock, with eight saying “buy” and 14 advising to “hold.”

HTC will release new models at the Mobile World Congress to be held in Barcelona, Spain, from Feb. 27 while Samsung won’t announce its newest Galaxy S3 at the show, Yolanda Wang, a Taipei-based analyst at HSBC Holdings Plc, wrote in a report. She maintained her “underweight” rating on the stock and cut her price estimate 6 percent to NT$386.

“We expect the new model announcements at the MWC will drive HTC’s share price in the near term,” Wang wrote. “However, we expect the rebound will be short-lived given the competition from both high-end and lowend.”

The shares, which have risen 4 percent this year, dropped 42 percent in 2011 and are down more than 58 percent from their April peak.

To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net