Android drives 33% profit increase at HTC

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Android drives 33% profit increase at HTC

Could reach 20m smartphone shipments this year, with high end focus

By CAROLINE GABRIEL

Published: 6 July, 2010

READ MORE: Financial | Taiwan | HTC | Android

Android helped Taiwan's HTC to beat expectations for its second quarter, turning in a year-on-year profit rise of almost 33% to hit NT$8.64bn ($268m) on revenues up 58% to NT$60.53bn ($1.88bn). This reflected the growing market profile and confidence of the smartphone maker, which is reaping the rewards of an accelerated product lifecycle and the its successful Desire top end model.

The better than expected figures indicate that the improvements in HTC's marketing and product design process are starting to filter through to its quarterly results. Last year, it suffered a couple of shaky quarters as its headstart in the Android market was eroded by the appearance of many competitors, and as its traditional Windows Mobile segment stagnated. In the first quarter of 2010, it fought back in shipments terms, having completely reworked its product range and initiated a hefty advertising and branding campaign in the US and Europe. Q1 unit sales were up 37% year-on-year to 3.3m, but this did not create an impressive profits story - profits were up only 2.5% to T$5bn ($160m), despite a 19.3% leap in revenue.

This pattern has changed in Q2 because HTC has added a significant new weapon to its armory, alongside its rapid development process - the gigahertz superphone family. It has gained a headstart in this new category with three closely related Android models, the Desire, Incredible and Sprint EVO (with some sales of the similar, Google branded Nexus One, which HTC makes). These have helped to boost market share but also margins, since they have helped boost flagging average sales prices (which fell by $9 to $339 between Q409 and Q110).

On the basis of these changes, analysts are forecasting that HTC could sell 20m phones this year, a huge leap from 12m in 2009 and bringing it within sight of big hitters like Apple, which sold 25m smartphones in 2009. This is the expectation of Yuanta Securities' Bonnie Chang, who told The Wall Street Journal: "We expect the strong momentum to continue in the second half of the year as HTC will launch another round of new smartphone models in the third quarter."

This is the highest quarterly unaudited net profit HTC has seen since the last quarter of 2007, although at the time, Taiwanese companies did not treat employee bonuses as expenses, which would have altered the way it recorded net income.