HTC Plans Cheaper Phones Amid Gloomy Sales Forecasts – What To Expect

By Alexandra Burlacu email: | Feb 05, 2013 02:09 PM EST

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HTC said that it expects profit margins to continue declining as a result of increased competition from the likes of Apple and Samsung.

The Taiwanese firm said, Monday, that based on results from Q4 2012, it expects revenue to slide by 17 percent in Q1 2013. HTC's gloomy forecast is worse than what analysts had predicted. The company expects first-quarter revenue of between NT$50 billion ($1.69 billion) and NT$60 billion ($2.03 billion).

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According to Reuters, analysts had forecast revenue of NT$62 for the three months leading to March 31. Moreover, the smartphone maker also predicts a gross profit margin between 21 and 23 percent for Q1 2013, which would be either equal or lower than the 23 percent in Q4 2012. Meanwhile, HTC's operating profit margin is expected to be between 0.5 and 1 percent, compared to 1 percent in the fourth quarter of 2012 and 7.5 percent a year ago.

HTC has not only faced fierce competition from Apple and Samsung, but various companies that are targeting low-end smartphone markets have also had their impact. In an interview with the Wall Street Journal (WSJ) last month, HTC CEO Peter Chou acknowledged that his company had a rough year, but remained optimistic that 2013 will be better.

"The worst for HTC has probably passed. 2013 will not be too bad," Chou told the WSJ at the time. "Our competitors were too strong and very resourceful, pouring in lots of money into marketing. We haven't done enough on the marketing front."

Based on research firm IDC's calculations, however, HTC slipped out of the top five smartphone vendors as its shipments dropped by 25 percent last year. In Q4 2012, HTC is estimated to have grabbed only 4.3 percent of the total smartphone market share.

Now, the Taiwanese company plans to adjust its strategy in an effort to turn things around. After a conference call on Monday, Feb. 4, HTC's CFO Chang Chia-Lin told investors that the company will now start offering low-end, cheaper smartphones for emerging markets as part of its strategy to clean up the balance books.

The cheapest phone currently available in China costs 1,999 yuan, i.e. roughly $320, but HTC wants to drive prices even lower in its effort to conquer emerging markets over the next year.

"We're going to go down, but not below 1,000," explained Chia-Lin. "We see there's still room to play."

Two years ago, HTC was the second-most popular smartphone vendor in the U.S. but its profits and sales have tumbled since. The company is now betting on cheaper phones to change its fortunes, but the low-end smartphone arena has plenty of competition as well so it remains to be seen how HTC will fare in the long run.

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