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Brokerage downbeat on HTC's second-half sales growth prospects

2013/07/03 11:46:08

Taipei, July 3 (CNA) Taiwanese smartphone maker HTC Corp. may find it difficult to generate sales growth in the second half of 2013 despite the success of the new HTC One flagship device, Bank of America Merrill Lynch said Tuesday.

HTC's new models in the second half will mostly be refreshed versions of those launched in the first half, such as the Butterfly S and the 4.3-inch HTC One mini, a phone targeted at the mid-end market likely to be launched in the third quarter, the bank said.

"However, competition in the mid-end segment is much higher than the high-end in terms of price and performance, which does not favor HTC's business model and higher BOM (bill of material) cost design," Robert Cheng, a Taipei-based analyst at Merrill Lynch, wrote in a research note.

The flagship HTC One may contribute little to growth, Cheng said, because it has already been on the market for around five to six months and is close to the end of its product cycles, suggesting a decline in shipment momentum in the near future.

Also, HTC missed a good window of opportunity in the first half to rebuild its volume and brand premium in the high-end smartphone market because of execution and operation issues, Cheng said.

The analyst gave the stock an "underperform" rating and a target price of NT$153 (US$5.09) while lowering his estimates for HTC's earnings per share by 17 percent for 2013 and by 3 percent for 2014 to reflect a softer-than-expected margin recovery.

HTC shares were up 0.69 percent to NT$220 as of 9:55 a.m. Wednesday in Taipei.

The smaller version of the HTC One, dubbed the HTC One mini, is expected to hit the market in August, intensifying the Taiwanese firm's battle with arch-rival Samsung Electronics Co., Bloomberg reported on June 10, citing two informed sources.

The downgraded model will likely run a less powerful processor from Qualcomm Inc. and a lower-resolution screen than the flagship device, said one of the sources.

HTC's new top-tier smartphone model -- the HTC Butterfly S -- hit Taiwan store shelves on June 28 in partnership with Chunghwa Telecom Co., the country's largest telecom operator.

The 5-inch device combines the strengths of HTC's two best-selling models -- the large-screen design of the HTC Butterfly and the software and hardware features of the new HTC One, such as front-facing BoomSound stereo speakers.

HTC is pinning its hopes for second-half growth on the Butterfly S, which it said will create a new mobile user experience.

(By Jeffrey Wu)