HTC faces near-term slowdown in sales: Merrill Lynch


TAIPEI — Sales of Taiwan’s HTC Corp. are expected to remain weak in the near term as the world’s No. 4 smart phone maker is facing heated competition and a shift to 4G LTE (long-term evolution) products, according to Bank of America Merrill Lynch.

In a recent research note, the investment bank maintained a “neutral” rating on HTC and a target price of NT$570, citing that HTC has noticed a slowdown in its business in the U.S. market, which contributes 40-50 percent of its sales.

“IPhone 4S momentum is extremely strong and is the largest winner in the fourth quarter of 2011. Also, there is a product transition on HTC’s models for Sprint Nextel and Sprint, as a new carrier for Apple Inc., has a big push on iPhone 4S,” Merrill Lynch analyst Robert Cheng said in the note.

Although HTC’s business in Asia is solid with strong growth, it cannot offset the slowdown in other regions on back of its smaller base, Cheng said.

On Nov. 23, HTC dropped its previous forecast for the fourth quarter of 2011, saying that the new revenue guidance will be equal to the same period of last year due to a poor macro environment and competition. That means HTC’s fourth quarter revenue will be around NT$104 billion, down 17-23 percent from the range between NT$125 billion and NT$135 billion that it forecast at an Oct. 31 investors conference.

HTC also announced Tuesday its consolidated sales for November fell 29.8 percent from October to NT$30.94 billion, and the November figure, a one-year low, also dropped 19.6 percent from a year earlier.

“Investors view that HTC’s valuation looks attractive now. However, the sales momentum should be slow in the next three to four months because of product transition,” Cheng added. “We believe its new model launches and popularity are the most important potential catalysts for its share price.”

Merrill Lynch believed that HTC will focus on LTE, quad core processors, as well as slim and light designs on its next models, which will drive the Taiwan-based company’s momentum again. Those new models are expected to be released around February or March 2012, the bank said, especially during the Mobile World Congress in Barcelona, Spain, which is the world’s largest trade show and conference for the mobile industry. Given that rival Samsung Electronics Co. is ahead of peers in display, HTC will continue to increase cooperation with Japanese players and Taiwan local suppliers to develop its technology and design on resolution, the bank said.

HTC shares plunged 6.55 percent to close at NT$428 in Taipei yesterday.