HTC sales drop 52% in Jan. Plans 35% decline in Q1. R&D slashed by 60% in Q4, starts hiding unit volumes too

Things just keep getting worse for HTC.

They were already pretty bad in the last quarter of 2011, when HTC had to issue a profit warning and then reported 30% revenue decline compared to Q3.

Now this HTC sales slump is accelerating into 2012.

January revenues just came in at 16.6B $NT ($560M), and they are a whopping 52% lower compared to January 2011. In the guidance for the January-March quarter, HTC now expects to sell NT$65-70B ($2.19-2.36B) worth of smartphones, which is more then 35% decline from $NT 104.16B ($3.5B), HTC collected in Q1 2011.

And, with January numbers as they are – I’m not at all sure that in April HTC will be able to deliver the promised revenues.

The sales in February and March will have to be much better then they were in January, to get to $NT65B for a quarter. Maybe they will. The revenue guidance for Q1 2012 includes 2% decline in gross margin and 5% decline in operating margin – which means we should see a lot of price slashing on current HTC models, and that may help drive smartphone sales. When asked about January numbers and ability to deliver on guidance, HTC CFO Winston Yung was pretty sure that they will get there.

On the other hand, in late October 2011, HTC was pretty sure about its Q4 guidance too. But 3 weeks later came out with a profit warning, nonetheless. So an additional slash in revenue forecast sometime late February or early March is not out of the question.

Another bummer in HTC’s Q4 report was the their decision to stop sharing actual smartphone shipments and average selling prices. HTC cited “competitive reasons”, and, with Samsung hiding those numbers for 3 quarters already – there is some merit to that. But the choice to seriously limit performance disclosure just as your growth stalls and your sales start falling, raises a lot of questions. Even when there aren’t any funny things in the financial numbers you reported.

And there was one very interesting detail  in HTC’s financial report. From Q3 2011 to Q4 2011, in just 3 months, HTC somehow managed to reduce their R&D expenses by 60% – from $NT5.5B ($185M) to $NT 2.2B ($74M). With the bulk of R&D costs usually related to engineering/researcher salary expenses, such a dramatic drop in such a short period looks pretty strange. And does not bode well for future product development.

Maybe today’s HTC problems are just a blip. Company execs were pretty open about the reasons for current troubles. “We simply dropped the ball on products. In form factor, design, battery life” – HTC’s CFO said during earnings conference call. And HTC’s sales were hit particularly hard in the U.S. where their LTE devices were thicker, not as good looking and had worse battery performance then competition.

HTC CFO said that they have learned their lessons from 2011, and are working hard to get back on track. This includes:

  • complete reevaluation of components that go into HTC phones to improve the performance
  • creation of separate “Studio” unit, staffed with designers and engineers working on new models and reporting directly to CEO Peter Chou
  • putting more efforts behind fewer products. Which means reduction in number models/SKUs, with bigger promotion and marketing budgets per model
  • increased focus on LTE devices, especially on improving their battery life

We’ll have to wait and see if it works.

HTC is hoping that the new product portfolio, part of which will be announced during Mobile World Congress in Barcelona, and ship sometime in Q2, will help to turn things around.

Maybe it will. Right now smartphones are a hit business, after all. And HTC’s Sensation bet for 2011 simply didn’t pan out. If they took last year’s lessons to heart, and will be able to come up with a new hit model that can stand up to Samsung Galaxy S3 and later iPhone 5, HTC might get their turnaround this summer.

But if  their next flagship is another dud like Sensation – by the end of 2012 HTC might be following in the footsteps of Motorola and Sony Ericsson, losing piles of money, on the way to become a smartphone division of some bigger rival.

I’m looking forward to HTC Barcelona announcements to see what they will come up with.

 

Author: Stasys Bielinis

While I like to play with the latest gadgets, I am even more interested in broad technology trends. With mobile now taking over the world - following the latest technology news, looking for insights, sharing and discussing them with passionate audience - it's hard to imagine a better place for me to be. You can find me on Twitter as @UVStaska'

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  • Anonymous

    Product life cycle in mobile business is 18-26 months for most companies. 12 months for the fastest big players.

    The fruits of their current changes will be seen in lat 2013 or early 2014.

    And yes, it’s refreshing to see them really just admit things bluntly, unlike Nokia who keep saying everything is ok, going as planned and blah-blah-blah.

    In fact, I have more faith in HTC turn-around than in the Nokia one.

  • Anonymous

    Product life cycle in mobile business is 18-26 months for most companies. 12 months for the fastest big players.

    The fruits of their current changes will be seen in lat 2013 or early 2014.

    And yes, it’s refreshing to see them really just admit things bluntly, unlike Nokia who keep saying everything is ok, going as planned and blah-blah-blah.

    In fact, I have more faith in HTC turn-around than in the Nokia one.

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