HTC warns of potential Q3 operating loss, plans more mid-tier products

HTC, struggling to gain traction on the back of its flagship One smartphone, warned that it could post an operating loss for the third quarter, which would be its first since it became a public company in 2002. The smartphone maker also said it will release more mid-tier products to help it shore up its business.

Earlier this month HTC reported an 83 percent drop in net profit in its second quarter. For the third quarter, HTC said that it expects revenue of between $1.7 billion and $2 billion, which is below a market consensus of $2.2 billion, according to Reuters, and would be 30 percent less than the $2.36 billion HTC had in the second quarter.

In a statement, the company said its overall gross margin has been impacted by "the relatively higher cost structure, lack of economy of scale and certain provisions needed to facilitate the clearance of aging products in the channel." The company said it has taken actions to address these issues and expects to see improvements in the fourth quarter.

Still, the company faces serious headwinds as it looks to chart a recovery and get back to growth; if revenue does fall in the third quarter it would be the eighth consecutive decline in quarterly sales for HTC.

"Scale is one of our challenges and we recognize that…we have more mid-tier products coming later this year, and this product portfolio will help us return to momentum," CEO Peter Chou said Tuesday on the company's earnings conference call, according to the Wall Street Journal.

Chou, who has previously said HTC will not go after the low end of the smartphone market, said new mid-tier products will be coming in the late third or early fourth quarters. "We suffered a little bit in this mid-tier market share from the end of last year to so far, in terms of competition," he said, according to the IDG News Service. "However, with this new range of mid-tier products we will address those challenges."

Once second only to Apple (NASDAQ:AAPL) in U.S. smartphone sales, HTC has been squeezed at both the high end and the low end of the market. Analysts painted a gloomy picture of HTC's prospects: "The company is seeing challenges on all fronts," Yuanta Securities analyst Dennis Chan told the Journal. "Sales are slowing, there are problems with supply chain management and execution. The high-end market is saturating and Samsung is cutting prices, which will put even more pressure on HTC."

"It doesn't seem like the company has any strategy that can turn this around," said Daniel Chang, an analyst at Macquarie Securities.

Chou acknowledged that gaining market visibility for new products will remain a challenge. "The market is a little confused right now. There are too many products coming out," he said. "That's why we are planning to have a new range of products to try and stay competitive in the market."

Amid a wave of executive departures and shakeups, Chou said HTC is hoping to retain top talent partly by launching a new employee incentive program.

For more:
- see this release
- see this WSJ article (sub. req.)
- see this Bloomberg article 
- see this Reuters article
- see this IDG News Service article
- see this Engadget article

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