Feature Article

February 04, 2013

China Seen by HTC as a Market for Cheaper Phones

News from Taipei, Taiwan is that the outlook for HTC Corp’s first quarter revenue will be about 17 percent lower than last year’s fourth quarter. This position is worse than what analysts had predicted. In an effort to overcome the slacking sales and revenue, HTC will begin to offer lower priced phones. In doing so, it will try to take advantage of emerging markets in China.

Samsung Electronics and Apple Inc. have both had a major hand in HTC’s decline in sales, as the Galaxy series phones and iPhones have been taking over the market share for some time; therefore, since the second half of 2011, HTC has seen sharp declines.

In a conference call for investors on Monday, HTC Chief Financial Officer, Chang Chia-Lin, said that his company, which has tended to rely on developed markets for most of its revenue and in China has focused on mid- to high-end models, was now ready to offer smartphones priced less than 1,999 yuan ($320). This is currently its cheapest phone in China. He added, "We're going to go down, but not below 1,000. We see there's still room to play in 1,000 to 2,000 yuan phones.”

Last month, HTC also introduced local font phones to Myanmar (also known as Burma). This is, in part, its effort to explore new and emerging markets.

Unfortunately, analysts see the power of HTC’s brand lagging far behind Samsung and Apple. That most likely means that 2013 will not be a turnaround year for the company, and it will have a lot of work to do in order to catch up. HTC said it expects first-quarter revenue of T$50 billion to T$60 billion ($1.69-2.03 billion). That compares with T$60 billion ($2.03 billion) in the fourth quarter and T$65.75 billion ($2.19 billion) one year ago.

News is that the next version of HTC’s flagship smartphone, which has been code named "M7," is expected to be launched in New York and London in the middle of February. This could give the company a first mover advantage of a few months on features such as higher-resolution cameras. Chang declined to give details or a launch date for the new model, but said he expected sequential revenue growth quarter to quarter in 2013 as the company rolls out new products.

On Monday, shares of HTC fell 1.6 percent, versus a 0.9 percent rise in broader market. HTC's shares have fallen more than 40 percent since the start of last year, compared with a 12 percent rise in the Taiwan stock benchmark.

It is always hard to tell how sales will go at the beginning of a new year. In general, everyone spends so much money at Christmas time that January and February are almost always recovery periods. Even Samsung Electronics, the world's top smartphone maker, said last month that it expected the global smartphone market to shrink in the first quarter from the seasonally strong fourth quarter.

HTC sees China as the world’s most populous nation and a rising consumer power. It could be a key battlefield for smartphone makers because there is a low level of penetration in that region. The dilemma is that while it’s an open region, consumers are price conscious. The question that HTC and other companies looking to move into this territory must now consider is how to maintain a high-end image while still being able to tap into the mass market.

Edited by Allison Boccamazzo

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