HTC Q3 net profit falls 18% on higher marketing costs

Analysts say fierce competition in smartphone sector has pushed down prices.

Smartphone maker HTC Corp. reported Tuesday an 18% drop in third-quarter net profit amid high marketing costs that may continue pressuring profit into next year.

The company, the world's largest maker of phones using Microsoft Corp.'s operating system by shipments, said its net profit for the three months ended Sept. 30 fell to NT$5.76 billion (US$179.0 million) from NT$6.99 billion a year earlier.

Earnings per share slid to NT$7.26 from NT$9.25.

Revenue dropped 10% to NT$34.0 billion, from NT$37.86 billion a year earlier, the low end of the company's late July forecast of NT$34.00 billion-NT$36.00 billion.

HTC didn't give a reason for the decline in earnings, but analysts said the Taoyuan-based company had ramped up spending on marketing amid fierce competition in the smartphone market which has pushed down prices.

Global handset makers have been beefing up their smartphone lineups on expectations shipments in the segment will grow in the double digits this year compared with an overall decline in sales of regular cellphones.

That is leading companies to rush out new products, spurring more price competition and squeezing margins.

"Demand for HTC's products has fallen as it's facing a lot more competition in the smartphone market now," said BNP Paribas' Hong Kong-based analyst, Alan Lin.

Lin has a reduce recommendation on HTC and a target price of NT$290.00.

The stock ended 0.7% higher Tuesday at NT$355.00, and is up 3.8% in the year to date. Taiwan's benchmark Weighted Price Index ended up 1.3% at 7536.05.

Lin said he expects HTC's earnings to continue declining in the current quarter and even into next year, as its operating expenses increase because of higher marketing costs. He said HTC's marketing programs would take at least a year to bear fruit.

The handset maker said in late July it expected full-year revenue to fall by a low- to mid-single digit percentage.

HTC also sells several smartphone models based on Google Inc.'s Android operating system, but faces competition in this sector from LG Electronics Inc. and Motorola Inc.

source