HTC dramatically cuts revenue forecast, looks beyond smartphones

Taiwanese smartphone maker HTC has revealed a major downgrade to its Q2 2015 outlook following disappointing monthly revenues in May.

On announcing healthy Q1 2015 revenues of NT$41.5 billion, which was a 25% improvement on the first quarter of 2014, HTC had every reason to think Q2 would be even better, with its new flagship smartphone having been launched at MWC 2015 and put on sale in April. HTC forecast Q2 revenues to be in the NT$46 billion to NT$51 billion range and April revenue of NT$13.5 billion meant that target was still in sight, especially as the One M9 supply chain would likely not have fully ramped until May.

However, May revenues have come in at a mere NT$10.8 billion and it’s reasonable to assume the slide will continue in June – hence the massive outlook downgrade. HTC now advises a range of NT$33-36 billion, a roughly 30% downward revision of the guidance it offered just a couple of months ago.

To put this into further perspective HTC reported Quarterly revenues of NT$65.1 billion in Q2 2014, so even if Q2 revenues hit the middle of its guidance they will be around half what they were a year ago.

When the One M9 was launched many commentators were underwhelmed by what they perceived as the lack of innovation in a smartphone that was very similar in design and spec to its predecessor. But HTC is hardly alone in this respect, with many of its competitors struggling to demonstrate meaningful innovation every year. Compounding the problem, market leaders Samsung and Apple are perceived to be offering something new and it’s likely that the Q2 smartphone numbers will show increased market share for both of them.

To some extent HTC had already seen the writing on the wall. It has been a long time since it capitalized on being the first Android Nexus partner in 2011 and sales have been in decline ever since. It was hoped, however, that Q1 2015 marked a return to form so this will be especially disappointing.

Back in March HTC decided Chairwoman Cher Wang should also take CEO responsibilities from Peter Chou. She now really seems to have her work cut out for her and seems to have acknowledged the severity of the situation by announcing her main strategic aims for the year in the monthly earnings release.

“We have identified four key business goals for this year,” said Wang. “1) further strengthen the competitiveness of our smartphone business; 2) reduce operating costs and increase operational efficiency; 3) improve organizational alignment and streamline business processes; and 4) aggressively develop new business opportunities beyond smartphones. We have full confidence in achieving our vision and maximizing shareholder value through our world-class innovation and by seizing the exciting new business opportunities in the connected lifestyle space.”

The first three are pretty standard business aims, which it is assumed were already priorities, but the focus on opportunities beyond smartphones is telling. HTC began as a white-label smartphone specialist that diversified into developing its own brand. Wang now seems to be acknowledging that smartphones alone are no longer enough to sustain the business and it must be hoping that categories such as wearables and virtual reality headsets will pay off.

HTC’s share price was down 10% on the news.