HTC, valued at around $16 billion, had previously forecast fourth-quarter revenue would grow 20-30 percent from a year ago. The surprise cut sent HTC shares tumbling 7 percent on Thursday to their lowest in around 16 months.
Analysts, several of whom downgraded the stock and cut their share price targets, said HTC did not have enough new product ramp-ups to offset the loss of market share in the US and Europe to Apple and Samsung Electronics.
“In terms of content, HTC is incomparable to Apple; in terms of performance and price, HTC is also no better than Samsung,” said Yuanta analyst Vincent Chen, noting HTC’s disappointing sale of high-end phones in the US, a market that accounts for around half its revenue.
Citi analyst Kevin Chang wrote in a client report that HTC could have better products from the second quarter of next year, but warned it can prove a long road to recovery for handset makers, citing the example of Nokia, once they start missing product cycles and guidance.
Sanford C. Bernstein senior analyst Pierre Ferragu said HTC’s revised guidance came as a surprise, and was “at odds with recent discussions we have had with distribution channels, especially in Europe.”
“A more benign explanation would be an inventory freeze in the US as the (Apple) iPhone 3GS, with its new pricing, the iPhone 4S and (Samsung’s) Galaxy II take the entire floor, and/or an inventory adjustment in Europe,” he added.
The revised guidance implies revenue will fall 20-25 percent from the third quarter, and HTC will ship 2 million fewer smartphones than expected, said Credit Suisse, which cut its target price for HTC shares by more than a quarter to T$680.
HTC warned last month of slowing fourth-quarter revenue, forecasting T$125-T$135 billion. Fourth-quarter revenue last year was T$104 billion ($3.42 billion).
Shares in the Taiwanese company more than trebled in the 14 months to April, and sales grew four-fold in a year and a half as consumers snapped up its innovative phones with their distinctive large clock numerals.
HTC had 10.8 percent market share in the third quarter, according to research firm IDC, behind Samsung’s 20 percent and Apple’s 14.5 percent. Nokia ranked third with 14.2 percent.
However, as Apple expanded its distribution channels and started selling iPhones through more operators in the US this quarter, analysts have warned about HTC’s future market share.
“We believe the street is aware of HTC’s competition risk, but still likes its strong branding and market share momentum,” Macquarie analyst Daniel Chang said in a report, noting, however, that “China and emerging markets’ contributions are just too small.”
“We believe HTC needs to find a way to penetrate the mid- to low-end market and drive volume, while regaining its technological leadership at the high-end. Unfortunately, HTC seems uncompetitive at both,” the Macquarie report added.
In a filing late on Wednesday, HTC said it had confidence in its products and business, and forecast revenue would pick up in the first half of next year.
On an investor call last month, HTC said it was more optimistic about the first quarter when LTE 4G phones will be launched. Ahead of the peak year-end holiday sales season, HTC has said it expects to attract sales with its new flagship Rhymes and Sensation XL models — mid- to high-end smartphones.
HTC is also betting on revenue growth from China and other emerging markets next year, saying it will invest in these markets as much as it does in the United States and Europe.
In a separate filing on Wednesday, HTC said it will re-evaluate its acquisition of graphics technology firm S3 Graphics, after a US commission ruled Apple did not violate patents owned by S3 Graphics.
That ruling dents HTC’s chances in a pending lawsuit against Apple, and raises the possibility it may face a ban on sales of its products in the United States — where it earns half its revenue.
The acquisition of S3 — for $300 million and announced in July — was, in large part, designed to boost HTC’s defense against the Apple patent suit. The deal would add 235 patents and pending applications to HTC’s IP portfolio.
HTC shares fell by the 7 percent maximum allowed in a day on Thursday, to T$526, in a broader market that was up 0.8 percent.
