HTC Cites LTE Disappointment For Q4 Sales, Profit Declines

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Taoyuan, Taiwan - HTC cited weakness in its U.S. sales as the primary reason for its first quarterly decline in sales and net profits in fiscal 2011.

For the fourth quarter ending Dec. 21, chief financial officer Winston Yung blamed declining U.S. sales in the quarter to iPhone competition and lower than expected sales of 4G LTE phones.

 LTE handset sales didn't fare as well as expected, Yung said, because "we dropped the ball." The handsets' form factor and product design "could be better," he said, pointing out that HTC's phones were thicker than competitors' phones. LTE subscribers also have to make "compromises" in battery life and form factor, but the industry will address those challenges in 2012, and LTE phones "will be as attractive" as phones using other technologies, he said.

Industry-wide improvements in LTE-phone battery life will remove the compromises that consumers must make when buying LTE phones, he added.

Following triple-digit percentage gains in first- and second-quarter revenues and profits and double-digit percentage gains in third-quarter revenues and profits, HTC posted a fourth-quarter revenue, operating profit, and net profit declines.

Fourth-quarter revenues declined 2.5 percent year over year to NT$101.42 billion ($3.42 billion), net operating profits declined 22.9 percent to NT$12.89 billion ($435 million), and net income declined 26 percent to NT$10.94 billion $369 million).

For the full fiscal year, revenues were up 67 percent to NT$465.79 billion ($15.7 billion), and net profits were up 56.8 percent to NT$61.98 billion ($2.1 billion).

 For the first quarter of 2012, the company forecast revenues plunging by 32.8 percent to 37.6 percent to NT$65 billion to NT$70 billion ($2.2 billion to $2.4 billion), with gross and operating margins expected to be "low," because the company's product line is in transition, which will also create price erosion, Yung said. Margins will return to normal after a first-quarter product transition, Yung noted. "Despite short-term difficulties, momentum will resume in the upcoming product cycle driven by HTC's brand strength, innovation, and design/engineering capabilities," the company added in a prepared statement.

Yung also forecast that HTC will return to its previous level of sales in the U.S.  because of a strong foundation that it built based on brand, product innovation and engineering.

In clarifying earlier statements from HTC that it would slow the pace of product introductions to focus on fewer models, Yung said the change would not produce a "dramatic reduction" in the number of product launches but would enable HTC to provide a "more focused approach." He mentioned that HTC will offer a "few hero products" that it will "strongly support" with R&D and marketing to ensure the company "is not outspent by our competitors," he said.

HTC has offered more products than competitors and as a result, the company has been outspent in marketing on a per-product basis.

Longer term, the company has begun making investments in smartphone marketing in developing countries because those countries  will be taking a larger share of the global smartphone market in the coming years.

As for its Beats audio subsidiary, Yung said the subsidiary is "performing financially very well" and that operators have embraced the differentiation offered by HTC handsets incorporating Beats audio technology. Beats technology "brings immediate credibility," he said.


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