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My Analysis of HTC's financial performance and their future
I'm bored today, so out of curiosity I wanted to see exactly what has been occurring with HTC from a financial perspective. I will be using information published from HTC themselves, as a source of reference. Iím using the material from their Q2 2013 earnings report, however there is quite a bit of detailed information related to accounting that I will leave out (to keep this short). If any of my information is inaccurate, let me know and Iíll correct it accordingly.
HTCís Market Performance
For the U.S., HTC has stated that growth and expansion has occurred in the retail market. One item of interest that I found was their performance in the Asian markets. Hong Kong and Japan appear to be places where their products are seeing better demand as well. HTC also mentioned that sales of their high-end devices improved in China.
As for the HTC One, it has outperformed their flagship devices from 2012. They noted that the HTC One was responsible for them obtaining an improved share of the high-end smartphone market in China. Increased brand awareness globally, has also been attributed to the success of the HTC One.
HTCís Future Expectations
They have already stated that they anticipate the Q3 report to contain up to a -8% operating margin. I believe this will be the first time that they will have posted a loss. Items identified that have a negative impact on their margin include: higher cost structures, economy of scale, and clearing inventory of older products that are still in the retail sales channel.
One area of focus theyíve identified is the mid-tier smartphone segment. Their expectation is that they can increase their presence and market share for the mid-level product range. This is focused mostly on the Asian markets. Q4 is when they anticipate that theyíll see the results from this new agenda.
When I look at the trends of their stock price, it continues to slide. Their profits and revenues from Q1 to Q2 increased. However, it appears that their operating expenses are whatís hurting their profits and margins the most.
When it comes to the sales of their products, in particular the HTC One, I donít see how anyone can expect one product to sell in a high enough volume to overcome operating costs. This includes the HTC One, One Mini, One Max, Butterfly S, etc. In my closed minded ignorance, that is unrealistic and naÔve due to a couple of factors. Firstly, I doubt they have the production capacity and/or supply channel that would be able to ship a large enough quantity that could fulfill that expectation. Also, the timeframe between increasing production capacity, shipping to retail markets, and the sales transactions would be longer than expected and would not provide results overnight.
In the U.S. market, I donít see HTC having much of a chance to increase their brand awareness. Looking at the top two manufacturers (Apple and Samsung), they create more than just smartphones. Their name expands to the appliance, consumer electronics, and computer/tablet markets. Iíve noticed a trend where manufacturers who are known mostly for their smartphone devices only, have been struggling to keep up with the top 2 in the U.S. market. Nokia, RIM, HTC, Motorola, and a few others come to mind. If what I observe is indeed a factor for expanding brand awareness, then HTC would have to execute a perfect plan to overcome the odds for success. The same applies to ZTE, Oppo, and Huawei when it comes to the U.S. market.
Since HTC is seeing positive reception in the Asian markets, in particular China, I think that focusing their attention there could have the most positive impact on their earnings. If itís true that they are working on a China exclusive OS for smartphones, that might be a factor. In any case, I strongly believe that the Asia market will be key to them improving their standings.
I ask myself if HTC will be out of business, go bankrupt, or be sold off by the end of the year. If I were to go by the articles from technical writers/analyst and ignorantly chose to take their word for it, then Iíd say yes. One caveat is that these are HTCís statements about how their business is functioning. They could be telling the truth or not. However, looking at their Balance Sheets pretty much confirms what theyíre bringing in and losing. I'm almost certain that no single phone, SD Card inclusion, Removable Batteries, 2 month OS update turnaround, or a 30MP Ultrapixel Camera will be responsible for bringing them remotely close to their 2011 peak.
If anyone else has facts or opinions they'd like to share about HTC and what you think we can expect from them and their products in the future, Iíd like to hear your perspective as well.