HTC slashes Q2 revenue forecast, citing weakness in China, premium smartphone sales

In a surprise move that reflects the continued unevenness of its turnaround efforts, HTC cut its revenue projection for the second quarter and said it expects to report a net loss amid weaker sales for its high-end smartphones.

HTC said in a statement that it may incur a net loss of between $256 million (7.95 billion New Taiwan dollars) and $291 million for the second quarter. If HTC does post a net loss, it would break its streak of four straight quarters of steady if small profits, The Wall Street Journal noted. Recently, HTC has focused on selling mid-range phones in emerging markets and has slashed costs by outsourcing some of its manufacturing.

In a sign of how much sales of its new One M9 flagship smartphone may be struggling in the market, HTC said it now expects second-quarter sales of between $1.06 billion and $1.16 billion, down from a previous estimate in late April of $1.48 billion to $1.64 billion. HTC has been dinged for not doing enough to differentiate the One M9 from its predecessor from 2014, the One M8.

HTC also released the phone just as Samsung Electronics released its revamped Galaxy S6 and S6 Edge, which garnered strong reviews. Samsung also has a massively larger marketing budget than HTC, which, in a bid to set itself apart, announced it will offer a phone-replacement service to U.S. One M9 users at no additional cost. 

HTC also plans to jump into the virtual reality market with the HTC Vive, a virtual reality headset that features 70 sensors to provide a full 360-degree tracking. The company has teamed with VR expert Valve on the product and the headset uses Valve's Steam VR tracking and input technologies.

"The change for revenue outlook is due to slower demand for high-end Android devices, and weaker than forecast sales in China, while gross margin is revised primarily on product mix change and lowered scale," the company said in a statement. "At the same time, increased competition has raised operating costs for product promotion; HTC is enacting measures to further improve operating efficiency."

In recognition of the prevailing market conditions, HTC said it has "embarked on a comprehensive review on our assets based on current business conditions and future operational needs," which led the company to take a one-off impairment charge of around $93.3 million. 

"We have identified four key business goals for this year: 1) further strengthen the competitiveness of our smartphone business; 2) reduce operating costs and increase operational efficiency; 3) improve organizational alignment and streamline business processes; and 4) aggressively develop new business opportunities beyond smartphones," HTC Chairwoman and CEO Cher Wang said in a statement. "We have full confidence in achieving our vision and maximizing shareholder value through our world-class innovation and by seizing the exciting new business opportunities in the connected lifestyle space."

HTC has struggled to set itself apart from Samsung and Apple (NASDAQ: AAPL) at the high end and is also getting hammered by Xiaomi, Huawei, ZTE, Lenovo and others in the mid-range part of the market, especially in China.

According to the Taipei Times, Wang apologized for the company's performance at the firm's annual general meeting this week. "HTC's recent performance has let people down," Wang said at the meeting.

Wang said the company plans to launch a "hero product" in October, and make significant improvements in innovation and design for the next flagship model next year, the report said. Wang also added that HTC will improve its product mix strategy for smartphones.

Wang noted that Apple and Samsung have marketing budgets that are 20 times higher than HTC's, but conceded the firm must improve its marketing. According to the Taipei Times, she said HTC does not perform well when using conventional marketing strategies and will not renew actor Robert Downey Jr.'s contract as a spokesman after this year.

For more:
- see this HTC release
- see this WSJ article (sub. req.)
- see this ZDNet article
- see this Taipei Times article
- see this Android Authority article

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