HTC posts first-quarter loss on weak flagship phone sales

The HTC One spent its year at the top of the product line receiving rave reviews but was undermined by advertising widely criticised as confusing, sending the company's market share into freefall.

HTC was once a firm third to Apple Inc and Samsung Electronics Co Ltd, selling 10 percent of smartphones globally two years ago, but it ended 2013 with a market share of just 2 percent, showed data from researcher Strategy Analytics.

The company started 2014 by booking a net loss of T$1.88 billion for January-March. That compared with a mean loss of T$1.59 billion estimated by 18 analysts polled by Reuters, and profit of T$85 million logged a year earlier.

Revenue fell 22.6 percent to T$33.12 billion, the company said in a statement on Monday.

HTC, however, broke 28 months of on-year revenue declines with a rise of 2.16 percent in March, and said it expected to return to profit in the second quarter thanks in part to the late-March release of its upgraded flagship, the HTC One M8 (First impressions I Pictures).

Shares of HTC have fallen 38 percent over the past year, compared with a 12 percent rise in the Taiwan Stock Exchange Weighted Index. Ahead of the release, they closed up 3.6 percent versus the benchmark's 0.1 percent loss.

Marketing
The former contract manufacturer released a series of mid-range smartphones in recent weeks, predicting cheaper phones in emerging markets will help it return to profit this year.

It has also launched a partnership with search engine giant Google Inc to manufacture smart watches.

But it is the new flagship HTC One M8 that the company hopes will help it reestablish itself as a challenger to market leaders Apple and Samsung.

"The M8 is good, but it's not as revolutionary as the previous flagship," said Yuanta Securities analyst Dennis Chan. "Everyone is watching the second quarter to see how it sells."

(Also see: HTC One (M8) vs. HTC One)

Tech website CNET.com awarded the phone four and a half stars out of five, calling it "a stunning sequel" to last year's HTC One - a phone whose equally strong reviews were not matched by marketing and so did not translate into strong sales.

The new flagship could be in for a similarly rough sales ride as smartphone growth globally is likely to slow this year to 19 percent from 39 percent in 2013, and taper off over the next few years, showed data from researcher IDC.

As smartphones mature and technological upgrades become more incremental, analysts say even more importance will be placed on marketing and brand image - an area Chairwoman Cher Wang admitted HTC "didn't do well" last year.

To distinguish itself to trend-conscious consumers, HTC must learn from Apple, whose innovative brand image and marketing strategy has won plaudits, said Taipei-based brand consultant Mark Stocker.

"Mimic them, but figure out what your brand stands for," said Stocker. "If Apple is Mercedes Benz, try to make yourself BMW."

© Thomson Reuters 2014