HTC shares extend losses on lower-than-expected Q2 guidance

Taipei, May 3 (CNA) Shares of HTC Corp. continued to lose momentum Friday morning after the Taiwanese smartphone vendor gave a lower-than-expected guidance the previous day for the second quarter of this year, dealers said. Uncertainty over the company's earnings outlook continues as it plans to assign a large chunk of funds to product promotion campaigns, which could squeeze its bottom line, they said. As of 11:14 a.m., shares of HTC had dropped 3.73 percent to NT$284.00 (US$9.59), with 15.39 million shares changing hands. The weighted index on the Taiwan Stock Exchange was up 0.40 percent at 8,161.10 points. On Thursday, HTC shares closed down 1.99 percent at NT$295.00 after the company proposed a NT$2 cash dividend for each outstanding share for 2012, the lowest since its listing on the local bourse in 2002. "The cautious second-quarter guidance from HTC has further dampened sentiment among many institutional investors, in particular foreign brokerages, who had been optimistic toward the company," MasterLink Securities analyst Tom Tang said. "It's no surprise that the stock encountered downward pressure, extending from yesterday, soon after the local bourse opened," Tang said. At an investor conference Thursday, HTC projected a gross margin of 22-24 percent for the April-June period, up from 20.3 percent the previous quarter. It said its operating margin for the second quarter could range between 1 percent and 3 percent, up from 0.10 percent in the first quarter. The smartphone vendor has also forecast that its consolidated sales for the second quarter will grow about 64 percent from the first quarter to around NT$70 billion. The market had expected a gross margin of 24.6 percent and an operating margin of 5.4 percent for the company, while investors had anticipated a 70-80 percent quarter-on-quarter increase in sales for the second quarter. "Before the investor conference, a group of foreign brokerages were expecting a better forecast for the second quarter, which prompted them to buy into HTC shares in recent sessions," Tang said. In April, HTC shares rose more than 23 percent, largely on aggressive foreign institutional buying, outperforming the broader market's 2.21 percent gain during that period. HTC said old device models, which have lower profit margins, are expected to affect its bottom line in the second quarter. The company, however, anticipates that an improvement in its product portfolio will lift its gross margin in the third quarter. "But, I am not so sure," Tang said. "To my knowledge, HTC plans to spend a lot every quarter this year to promote its new products and it's very likely that its profitability will be affected." "I am also worried about the stiff competition HTC will face in the second half of this year, when Apple Inc. is expected to unveil its new products, making the whole situation more complicated," Tang said. (By Frances Huang)