IPhone 5 launch may hit HTC earnings in Q4
CNA Monday, July 9, 2012, 6:45 pm TWN
TAIPEI -- Citigroup Inc. has warned that Taiwanese smartphone maker HTC Corp. will face erosion of its market share and a sharp decline in earnings in the fourth quarter of this year when Apple Inc. is expected to launch its next-generation iPhone.
In a recent note to clients, the third-largest U.S. bank cut its estimates for HTC's third- and fourth-quarter earnings per share by 12 percent and 28 percent, respectively, while lowering by 32 percent the Taoyuan-based firm's 2013 earnings.
The revision was to reflect HTC's additional market-share loss in the high-end segment to Samsung Electronics Co. in the third quarter of 2012 and to Apple in the fourth quarter, according to Citi.
It estimates that the total fourth-quarter iPhone build plan will reach approximately 60 million units, including 10 million old iPhones and 50 million iPhone 5 phones.
That will give Apple 54 percent market share in the high-end smartphone segment, up significantly from around 36 to 38 percent in the second and third quarter of 2012, the bank said.
"While Apple's 54 percent high-end market share apparently will not be sustainable, it will substantially squeeze HTC's market share and profitability in the fourth quarter of 2012 and the first quarter of 2013," Citi analyst Kevin Chang wrote in the note.
"Recall when Apple's high-end market share reached 46 percent in the first quarter of 2012, HTC's revenue and margin both collapsed, given HTC's very high exposure to the high-end sector," said Chang, who cut HTC's target price from NT$310 to NT$250.
With Apple and Samsung's continuing gain in share in the high-end space, Chang expects profitability of the non-Apple/Samsung camp to deteriorate further in 2013.
This might potentially lead to further industry consolidation over the next 12-18 months, while HTC is likely to outlast its competitors and become a small but profitable No. 3 player with better execution and time to market, he said.
Before the completion of the industry consolidation, however, Chang believes that HTC will continue to see severe pressure in average selling prices and margins, as well as a potential risk of running into operating losses in 2013.
On July 4, England's High Court of Justice said in a ruling that HTC's devices did not infringe on four patents claimed by Apple, including the iPhone maker's flagship "slide to unlock" patent.
The ruling came two days after the U.S. International Trade Commission began an investigation into Apple's claim that HTC continued to infringe on an Apple patent in violation of an order issued in December last year.
However, the agency denied an emergency request by Apple to have some of HTC's latest smartphones, including the One X and EVO 4G LTE, detained at the U.S. border.
Aaron Jeng, a Taipei-based analyst at Nomura Holdings Inc., viewed the U.K. ruling as a small victory for HTC in the latest round of its patent battle against Apple, though lawsuits between the two electronics makers are not likely to end soon.
"We maintain our consistent view that lawsuits may affect short-term sentiment, while fundamentals, including competitiveness and earnings, are still key drivers of the share price in the long run," Jeng said in a separate report.
"HTC's structural challenges remain, given the smartphone commoditization trend in the mid-to-low end segment and tough competition in the high-end segment."
The Japanese brokerage has kept a "reduce" stock rating and a target price of NT$260 on HTC.
Shares of HTC closed down 5.15 percent at NT$322 Friday on the local bourse.
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