HTC set to make cuts after Q2 reverse

Taiwanese smartphone maker HTC reported Q2 2015 revenues at the low end of its revised forecast, as expected, and indicated significant job cuts as a result.

The NT$33 billion revenues were well below what HTC had initially hoped for after a relatively strong Q1, and the quarterly net loss of NT$ 8 billion is clearly unsustainable. Furthermore HTC is guiding NT$19-22 billion revenue for Q3 and a net loss of around NT$5 billion.

“While the current market climate is challenging, I firmly believe the measures we are putting in place to streamline our operations, improve efficiency and focus, and increase our momentum will start to show results over the coming quarters,” said Cher Wang, Chairwoman and CEO of HTC. “I am confident that our smartphone phone and connected devices strategy is the right one for HTC, and our corporate initiatives will ensure that we deliver on both our vision and business goals.”

Further colour was offered in HTC’s analyst call, during which CFO and head of sales Chialin Chang detailed the perceived problem with Q2 and indicated some of the things HTC is going to do about it. In essence the whole high end Android market is being damaged by Apple’s resurgence right now, but HTC thinks it can improve its chances by launching a more “fashionable” version of its flagship phone.

“As I’ve said, in the high-end smartphone, as our Chairperson also mentioned, that we intended to create a, I would say for lack of better description, and we’re not disclosing the product details in follow our tradition, more a fashionable, trendy design, while consistent with HTC DNA, for the[Holiday Hero],” said Chang.

HTC is also going to further streamline its product portfolio to focus entirely on the higher end, where margins are greater. There was also extensive reference to HTC’s product diversification strategy, specifically wearables and virtual reality. The nature of the cuts was not revealed in much detail, but it’s fair to assume job losses will be involved.

HTC is not the only Android vendor to focus on the high end, with Sony having announced something very similar, but there is little room for manoeuvre. Even the best Android flagship device needs to be priced below the equivalent iPhone due to the superior strength of the Apple brand and vendors like Xiaomi are increasingly producing cheaper devices with very competitive specs. As the guidance implies things are likely to get worse before they improve at HTC.