HTC Reports Tough Q1: 64% Revenue Drop, Net Loss of $80M

HTC posted a loss and saw its revenue dive in a tough smartphone market, though it could rebound with some recent big product launches.

HTC, HTC 10, net loss, Q1 2016 revenue, smartphones, Samsung, Apple, Verizon, Sprint

HTC's earnings were hit hard in the first quarter of 2016 as the smartphone and consumer mobile device company saw its revenue fall 64 percent from the same quarter a year ago. The company posted a loss of $80 million in the latest quarter, compared to a net profit of $11 million one year ago.

The company's revenue fell to $454 million (14.8 billion New Taiwanese Dollars) from about $1.27 billion (41.5 billion NTD) one year ago, while it lost $80 million (2.6 billion NTD) in the quarter, compared to a net profit of $11 million (360 million NTD) a year ago, the company said in its quarterly report, released May 9.

The Taiwanese smartphone maker's gross operating loss for the quarter was $147 million (4.8 billion NTD), compared to a small gross profit of $627,800 one year ago.

The company, however, couched the reduced revenues and the posting of a quarterly loss by pointing to the recent launch of its Vive virtual reality headset and of its newest flagship smartphone, the HTC 10 (pictured), which the company hopes will reinvigorate its sales.

"The media and consumer buzz around HTC, including for the keenly awaited launches of the flagship smartphone and Vive virtual reality system, clearly demonstrate our leadership in innovation and have provided a great boost to the HTC brand," Cher Wang, chairwoman and CEO of HTC, said in a statement. "We have been working hard to lay the groundwork over the past year, streamlining processes and optimizing resources to enable us to develop the best products in the most effective way."

The company said that between the Vive and HTC 10 launches that it "anticipate[s] good momentum over the year" for improved earnings.

Avi Greengart, an analyst with Current Analysis, told eWEEK that he doesn't see HTC's drastically lower revenue figures as a shock because it is the period following the much more robust fourth-quarter holiday sales and because consumers were potentially holding back on HTC purchases to wait for the new HTC 10 flagship device.

If the company's second-quarter performance is a repeat of its first quarter results, however, that could mean trouble for HTC, he said.

For HTC, the problem has been that demand at the high end of smartphone market has been consolidating around Samsung and Apple, leaving HTC and others to fight for a dwindling share of the rest of the market, said Greengart.

HTC's most recent flagship smartphone, the HTC One M9 handset, has been around for a while and "was not a particularly big hit over the holidays," said Greengart. "Their phone sales have been deeply troubled. And without anything like Samsung or Apple brand recognition, HTC's strong products don't get much attention at retail."

Greengart said he expects that the new HTC 10 and sales of the Vive VR headsets will help HTC improve its earnings in the current quarter.

Rob Enderle, principal analyst at Enderle Group, told eWEEK that part of HTC's predicament is that it is an Android phone maker in a very crowded global marketplace.

HTC "started as largely a Windows phone vendor and then pivoted hard on Android, which rapidly drove the margins out of the segment and used a model that didn't generate marketing funding," said Enderle. "As a result, the market tended to favor the very large and well-funded vendors like Samsung, and smaller vendors like HTC were increasingly left on the sidelines with good products but no real funding to market them."

For HTC, that creates a quandary, Enderle said. "Currently HTC has one of the best Android phones in the segment, but it is massively eclipsed by Samsung. With the entire smartphone segment weakening, small, focused players who have to live off of smartphone revenues will likely be forced out, leaving firms that have a broader diversified product portfolio like Lenovo, LG and Samsung in place."

In HTC's situation, "the long-term lesson is that it is probably unwise to tie your future to a firm, in this case Google, which has no interests in preserving hardware margins," said Enderle.

HTC's newest smartphone, the HTC 10, launched through Verizon on May 5. The handset features a Qualcomm Snapdragon 820 quad-core 64-bit processor, vastly improved front and rear cameras, and upgraded audio capabilities for better music playback compared with the previous HTC One M9 handset. It will also be available through Sprint starting May 13.

An unlocked version of the HTC 10 is also being offered directly through HTC for $699. The unlocked version is compatible for use on the AT&T and T-Mobile networks, according to HTC.