Foreign Investors Pessimistic about HTC’s Ability to Turn a Profit

17 Oct

Foreign institutional investors from the U.S. on Oct. 12 voiced doubt about HTC’s profitability, cutting their price target to NT$28 (U$0.88) a share, a 70 percent drop from HTC’s most recent five-day average price of NT$93.

HTC reported revenues of NT$9.33 billion in September, up 41.8 percent from the previous month and up 31.35 percent from the same time in 2015. The Taiwanese company’s Q3 revenues reached NT$22.23 billion, up 17.6 percent from the previous quarter. However, with the rising costs, U.S. institutional investors forecast that HTC could still incur a loss of up to NT$3.6 billion in Q3.

Reports by the foreign investors pointed out that the tight supplies of key components like DRAM, NAND flash and panels are pushing up costs, and that HTC’s scale of operations also limit the company’s bargaining power.

An Asian institutional investor on Oct. 7 expressed a similar view, maintaining a sell rating and giving a price target of NT$41. The investor believed that gross margin would be HTC’s key to getting into the black. The report said it would take a shipment of 1.05 million Pixel phones with a gross margin of 15.9 percent and 3 million units of HTC Vive with a gross margin of 17.9 percent for HTC to turn a profit next year.

Google released its latest phone Pixel with artificial intelligence-based technology in early October. The phone was designed and developed by Google and assembled by HTC. A commentary in Bloomberg called HTC a “loser” that has been “demoted to water boy.”

The report by U.S. investors also did not seem optimistic about Google’s Pixel. Although the industry generally believes that the explosions and recall of Samsung’s Galaxy Note 7 would help with Pixel’s sale, the institutional investors forecast a shipment of only 2 million Pixel phones in the second half of 2016. The investors said the rising costs of components will also limit HTC’s profit.

Meanwhile, Digitimes Research predicted that Google will ship 3 to 4 million units of Pixels this year, accounting for half of HTC’s smartphone shipment in the second half this year.

HTC is faced with plummeting revenues and smartphone sales in recent years. The company’s September sales rose by 40 percent to the highest point in 15 months, making some industry observers think if the company is starting to make a turn for the better.