HTC expects Q2 sales to plunge by as much as 29% as turnaround gets bumpy

HTC said it expects sales to drop by as much as 29 percent in the second quarter, as the company's turnaround efforts appear to have run into trouble. HTC just started selling its flagship One M9 smartphone globally earlier this month, so a weak sales forecast bodes ill for its prospects in a highly competitive market.

At the same time, the company is making its brand image a priority and focusing on the high-end of the smartphone market, according to CFO Chang Chia-lin. HTC has tried to diversify its revenue stream beyond smartphones by moving into new product areas like small portable cameras and high-performance fitness bands. The company is also turning to the Indian market to try and bolster its prospects.  

For the three months ending June 30, HTC said it expects revenue of between $1.51 billion (46 billion New Taiwan dollars) and $1.67 billion. That would be down between 29 percent and 22 percent from the $2.14 billion in sales it had in the year-ago period, but 11 percent to 23 percent higher than the first quarter, according to the Wall Street Journal. Analysts had expected sales to be largely steady in the second quarter compared with a year earlier, the WSJ said.

HTC also forecast second-quarter operating profit in the range of $2.63 million to $16 million, way below the $799 million the company reported in the year-ago period.

In an interview with the Journal, Chang said HTC is not going to slash its prices in emerging markets to compete with the likes of Xiaomi and Micromax.  "We cannot compete that way. Those low-cost players care only about volume, but can they be seen as cool technology brands beyond smartphones?" he said. "I'm not so sure."

Chang acknowledged that a lot of people are questioning HTC's strategy of prioritizing its brand image above sales volumes. "We think that's the right strategy because we started as a high-end player, and there is still room to go in terms of being a sizable market-share player," Chang said. "The flagship product would create a halo effect, drawing mid-tier and entry-level models along with it. Hopefully, the pie will grow and the mix will be healthy. It's natural that revenue contribution is associated with brand perception, and that's something we care about."

In March HTC named Chairwoman and co-founder Cher Wang as its new CEO, replacing longtime CEO Peter Chou. However, Chou is not leaving the company. Chou will lead HTC's "Future Development Lab," where he will be focused on future product development and growth opportunities for the firm. 

Chang said Wang "has put in more time planning the company's future, organizational structure and setting key performance indicators. You will see more changes in the future."

The company also plans to release a mid-range handset specially designed for the Indian market in the third quarter to try to gain traction in the world's third-largest smartphone market. "We're going to launch a product that will fit the country's wireless network, which includes CDMA and WCDMA standards," Chang said, according to the China Post.

For more:
- see this WSJ article (sub. req.)
- see this separate WSJ article (sub. req.)
- see this China Post article

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