HTC posts first net loss as turnaround struggles continue

HTC reported its first quarterly loss since it became a public company in 2002, as it had warned it might, underscoring the challenges the company faces as it continues to try to turn around sales in a smartphone market that has squeezed its market share.

The Taiwanese smartphone maker reported a net loss of around $101 million for the third quarter, and an operating loss of $119 million. The company said revenue clocked in at just $1.6 billion (which, coincidentally, is around what struggling BlackBerry (NASDAQ:BBRY) reported in revenue for its most recent fiscal quarter). That's down from $2.39 billion in the year-ago period.

HTC, once the darling of the smartphone market, has taken a precipitous fall during the past several years as competition has intensified and its products have struggled to stand out. HTC has been banking on its One smartphone, and the recently released One mini variant, to help turn sales around. So far, those efforts have proved largely unsuccessful despite widespread praise from analysts and reviewers for the products.

When it warned at the end of July that it might post a loss for the third quarter, HTC also said it will release more mid-tier products later this year to help improve its business. HTC is widely rumored to be preparing the "One Max," a variant of the One with a larger screen. The company has also recently hired actor Robert Downey Jr., star of the "Iron Man" and "Sherlock Holmes" film series, to be the spokesperson for a new advertising campaign aimed at restoring luster to the company's brand. And the company is keeping its powder dry for a larger marketing blitz for the 2013 holiday shopping season, but will face stiff competition in the form of Apple's (NASDAQ:AAPL) iPhone 5s and 5c, Samsung Electronics' Galaxy Note 3 and other holiday offerings.

Still, its latest results highlight how much ground HTC has lost. Analysts have argued the company has lost its direction as it tries to regain momentum against the likes of Samsung and its Galaxy line of phones, as well as Apple in the high-end of the smartphone market and Chinese vendors Huawei and ZTE on the mid-to-low-end.

"HTC needs to figure out if it just wants to focus on the high-end market or the mid-to-low-end segment, and right now it is missing out on both," Wang Wanli, a Taipei-based analyst at CIMB Securities, told Bloomberg. "In the fourth quarter many new products are in the pipeline, including iPhone, Samsung and Huawei, HTC only has one new model so they won't see a strong pick up."

"The sands are shifting quickly underneath the feet of HTC and the sharp rate of share loss has been exacerbated by the reduced brand power," RBC Capital Markets analyst Mark Sue told CNET. "For the most part consumers have equated Galaxy with Android and many purchase decisions are made even before the customer walks into a store."

In response to the company's continued troubles, some have called for a change in leadership. HTC, however, has said it remains committed to CEO Peter Chou.

Highlighting HTC's troubles, Samsung said it expects to post what would be another record operating profit in the third quarter of between $9.2 billion and $9.6 billion. However, several analysts have warned that Samsung's smartphone sales are showing signs of hitting a plateau, according to the Wall Street Journal.

Meanwhile, Microsoft (NASDAQ:MSFT) is petitioning handset maker HTC to support its Windows Phone mobile operating system as a second option on devices already powered by Google's (NASDAQ:GOOG) Android, Bloomberg reported. Unnamed sources with knowledge of the matter said that Microsoft Executive Vice President of Operating Systems Terry Myerson has discussed reducing or even eliminating Windows Phone licensing fees to make the pitch more attractive to HTC executives. The talks are preliminary and no decision has been made, two insiders added. For more on that story, see this FierceMobileContent article.

For more:
- see this release
- see this The Verge article
- see this Bloomberg article
- see this Reuters article
- see this CNET article
- see this WSJ article (sub. req.)
- see this separate Reuters article
- see this separate WSJ article (sub. req.)

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