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HTC under pressure to find partner after first quarterly loss

A new HTC Android-based smartphone Sensation is displayed during a news conference for the launch of the product in Taipei May 27, 2011. REU
A new HTC Android-based smartphone Sensation is displayed during a news conference for the launch of the product in Taipei May 27, 2011. REU

By Michael Gold

TAIPEI (Reuters) - Taiwan's HTC Corp slid into the red for the first time in the third quarter, adding to the case for the troubled smartphone maker to abandon its prized independence and reach out for a white knight soon.

Like other strugglers in the sector, HTC has been laid low by the product and marketing might of Apple Inc and Samsung Electronics Co Ltd - woes that have been exacerbated by supply chain constraints and internal turmoil.

But where Nokia Oyj has fallen into the arms of Microsoft Corp and Blackberry Ltd is now in play with one disclosed offer and another being considered, HTC has stuck to its guns that it is not for sale despite what analysts call an increasingly bleak outlook.

HTC posted a quarterly operating loss of T$3.5 billion ($120 million) on Friday as sales tumbled by a third from a year earlier, underscoring a dramatic decline for a company which boasts award-winning smartphones but has failed to develop a durable brand image.

"Fundamentally there are a lot of things that need to be fixed," said Laura Chen at BNP Paribas, adding that HTC needed to work on marketing, supply chain management and streaming its product line. "No sign of recovery anytime soon."

HTC's troubles have pushed its shares down some 55 percent for the year to date and sparked calls for the company to consider a radical overhaul. A JPMorgan note in July called for the company to look at merging with China's Huawei Technologies Co Ltd.

Huawei has since said it is not planning to acquire another smartphone maker to grow its market share.

NOT FOR SALE

Responding to growing speculation about a possible merger, Cher Wang, HTC's low-profile chairwoman and co-founder, has repeatedly ruled out selling the company and has said a low share price did not bother her.

Wang hails from an entrepreneurial dynasty and her father, the late Wang Yung-Ching, was the founder of Taiwan's Formosa Plastics Group. She currently owns 3.8 percent of HTC and has built a reputation for no-nonsense simplicity and cool-headedness in the face of pressure.

Chief Executive Peter Chou's abrasive management style and weak strategic vision have played their part in the company's decline, according to a interviews with a dozen former and current HTC executives.

Chou has declined to be interviewed, but in response to Reuters queries, the company said: "HTC's board and broad employee base remain committed to Peter Chou's leadership. The (flagship) HTC One product family - which has been met with accolades by media and consumers alike - was a result of Peter's vision and leadership, and speaks for itself."

At a net level, HTC booked a loss of T$2.97 billion ($100 million), bigger than an expected loss of T$1.8 billion, according to Thomson Reuters SmartEstimates. That compares with a net profit of T$3.9 billion in the same quarter last year.

Although its shares slid as much as 4 percent after the results, they later rebounded to trade 1.5 percent up on day, helped in part by a client note from Fubon Securities which said it believed HTC would team up with a Chinese IT manufacturer either through a potential cooperation deal or merger.

HTC declined to comment on the Fubon report.

The company's share of the global smartphone market has plummeted from a peak of 10.3 percent in the third quarter of 2011 to 2.6 percent in the most recent quarter, according to research firm Gartner.

Dennis Chan, an analyst at Yuanta Securities in Taipei, said HTC has been hurt by its insistence on using more expensive components, particularly chips, for low-end markets like China, cutting profit-margins down to razor-thin levels. The company works with California-based chip vendor Qualcomm Inc for most of its models.

"They could try adopting a MediaTek solution in China," Chan said.

Taiwanese chipmaker MediaTek Inc's cut-rate, cookie-cutter packages have proven popular among mainland phone manufacturers.

"They think they can customize and offer more diversity to consumers with the Qualcomm solution, but no one really appreciates it." ($1 = 29.3575 Taiwan dollars)

(Additional reporting by Clare Jim and Faith Hung; Editing by Edwina Gibbs)

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