HTC under pressure to find partner after first quarterly loss

Reuters

* HTC Q3 net loss T$2.97 bln vs consensus of T$1.8 bln

* Revenue slid by a third in the third quarter

* HTC hit by competition, supply chain woes, internal feuds

* Shares up 1.5 pct after contrarian brokerage report

By Michael Gold

TAIPEI, Oct 4 (Reuters) - Taiwan's HTC Corp slidinto the red for the first time in the third quarter, adding tothe case for the troubled smartphone maker to abandon its prizedindependence and reach out for a white knight soon.

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

But where Nokia Oyj has fallen into the arms ofMicrosoft Corp and Blackberry Ltd is now inplay with one disclosed offer and another being considered, HTChas stuck to its guns that it is not for sale despite whatanalysts call an increasingly bleak outlook.

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

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

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

Huawei has since said it is not planning to acquire anothersmartphone 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, hasrepeatedly ruled out selling the company and has said a lowshare 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 FormosaPlastics Group. She currently owns 3.8 percent of HTC and hasbuilt a reputation for no-nonsense simplicity andcool-headedness in the face of pressure.

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

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

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

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

HTC declined to comment on the Fubon report.

The company's share of the global smartphone market hasplummeted from a peak of 10.3 percent in the third quarter of2011 to 2.6 percent in the most recent quarter, according toresearch firm Gartner.

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

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

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

"They think they can customize and offer more diversity toconsumers with the Qualcomm solution, but no one reallyappreciates it."

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