How close was my forecast for HTC’s 4Q? Only 3.4% out

Back on 5 November I gave a forecast for HTC’s fourth-quarter (October-December) revenues, based on its October revenues. HTC hadn’t deigned to give on, but using historical figures I had a stab.

My forecast, then: NT$26.64bn, with a 10% error either way, giving a range of NT$23.9bn-29bn.

And how did I do? HTC published its monthly revenue figure for December, which was pretty dramatically down on the previous year, by 57%. In fact the December revenues were its lowest since at least 2005 – my data doesn’t go back further than 2006.

Here’s the graph of my forecast and the reality:

HTC's monthly revenues - actual v forecast

HTC’s 2015: pretty terrible, actually

The total revenue for the fourth quarter: NT$25.75bn, which comes in at 3.4% less than my midrange forecast. Thus making the point that if you collect enough data about the past, you might have a chance of getting close to a prediction about the future.

At the end of the third quarter its “cash and equivalents” were US$1.3bn; that’s getting eaten away by its losses. (In aggregate, it hasn’t made a penny in net profit since the third quarter of 2012 – all its profits in nine quarters of that time have been eaten by four quarters in which it made losses.) Its inventories, meanwhile, were 97% of revenue in the third quarter. That’s an excessive amount; you’d normally want those to be as low as possible, since money sunk into inventory is an opportunity cost: you could be spending it on something else, like marketing.

Gross profit at 18% will be NT$4.63bn, so the operating loss will probably be the same as I forecast, at around NT$4bn (US$125m). Full results later this month. Update: HTC announced (PDF) fourth-quarter operating losses of NT$4.1bn; gross margin was 13.9%.

In other words, HTC will never make a profit again in smartphones. Notice too how everyone has forgotten about the HTC Re camera.

Chief executive Cher Wang, interviewed by the Telegraph, doesn’t quite deny that the company might fold the smartphone tent:

“Yes, smartphones are important, but to create a natural extension to other connected devices like wearables and virtual reality is more important… We have a vision of smartphones with different types of form factors, it won’t always look like this,” she says.

So now its attentions turn to virtual reality, with the Vive, which seems likely to be priced around $1,500, with preorders starting on 29 February. (That should give the first-quarter numbers a boost, anyway.)

I’ll go out on a not very long limb here. The Vive’s specifications are high-end: you need to buy not only the headset, but also to have a really high-spec PC to do anything useful, and applications are thin on the ground. It’s going to have a tiny audience at first. Even there it’s competing with bigger and better-funded rivals, including Oculus (owned by Facebook – has a bit of cash) and Samsung (has a bit of cash) and Sony (has cash and installed base of gamers). Ignore specs, because actually buyers mostly will: what’s the reason to buy VR kit? For the experiences. If Valve doesn’t really come through on this, HTC is really going to have a serious problem.

Update 25 January: given the power of this attempt, I’ll have a stab at forecasting HTC’s January 2016 revenues, based on December 2015. The average of the nine years since 2006 suggests that January generates revenues 83.96% as large as December, with a standard deviation of 15.3%.

HTC’s December revenues were NT$6.52bn. Using those, the data suggests HTC’s January 2016 revenues will be NT$5,472m, with a potential range (on one standard deviation) of NT$4.47bn to NT$6.46bn (which is about 18% either way, so quite a large range; the key point is that the forecast suggests January’s revenues will be less than December’s). The first figure is less than US$200m at present exchange rates. We’ll find out the correct number in a week or two.

Post-update: HTC’s January 2016 revenues were NT$6.477bn – just over the top end of my forecast, but still less than December’s (just) and down 47% year-on-year. It’s less than US$200m per month.

5 thoughts on “How close was my forecast for HTC’s 4Q? Only 3.4% out

  1. Saying that HTC will never make a profile on smart phones sales is a little premature. Yes, HTC has a deadly tough 2015 but 2016 could turn out a lot differently IF HTC spends money to promote its flagship phone. They company has been dramaticslly reducing it’s overhead costs which will allow for higher profits in 2016 even if sales are flat.

    There is a future in VR for HTC, but it will take 3-5 years before that translates into a significant source of revenue for HTC. The company needs a strong smartphone business until that happens.

    We will see how things unfold over the next 2-3 month. If HTC delivers a solid flagship with a powerful marketing campaign, 2016 will be much better than 2015 was.

    • Do you think that HTC did not spend money to promote its flagship phone in 2015, or in 2014 (when it made the thinnest of profits)? If the company is reducing its overheads, what do you think those overheads consist of? Staffing; factories; other expenses. Staff and other expenses often affect marketing. If you seriously think that HTC’s terrible 2015 performance was down to “lack of marketing of its flagship phone”, you’re not keeping up with the dynamics of the smartphone market. You need scale (to buy components cheaply enough so you can make a profit on handsets), you need distribution (to reach buyers; see also scale), you need people to be interested in your product (via marketing). HTC has been failing on all three counts.

      The “oh, it just needs to promote its flagship” trope is also an instance of being blinded to the reality: HTC’s principal sales are of midrange (price) phones, not flagships.

      “If HTC delivers a solid flagship with a powerful marketing campaign, 2016 will be much better than 2015 was.”

      I’m sorry, but that statement leaves so many getouts it’s useless. Define “solid flagship” – was the M8 or M9 a “solid flagship” in its time? When has HTC had a “powerful marketing campaign”, and who else of comparable size (to HTC now) has achieved one?

      Just for your reference, HTC’s revenues in the fourth quarter – usually the busiest of the year for smartphone sales – were $805m. That’s about the size of BlackBerry. Remember them?

      • I’m not disagreeing if all of your points, but you do have to look at the data. While HTC sells more mid-range phones than its flagship phone, the flagship device is where HTC makes good profit margins. Also, Q2 of 2014 (the launch quarter for the HTC One M8) was the best quarter for HTC in 18 months. This was also the only quarter that HTC has a solid marketing campaign to promote its flagship phone.

        Before that, HTC relied on Sprint, Verizon and T-Mobile to promote the HTC EVO, Droid Incredible and myTouch phones – the devices which were responsible for HTC’s staggering growth in 2010 and 2011.

        The reason HTC has struggles to make a profit has a lot to do with overhead costs. The company somehow didn’t get the memo that sales of its phones have been down for the past three years. But now they are finally doing something about it. HTC is undergoing an internal restructuring which HTC claims will reduce overhead costs by 35%. This includes the recent sale of one of their factories and cutting its work force by 15%.

        It’s doubtful that HTC will ever get back to where it was at in mid-2012, but it’s very likely that HTC will be able to make a profit off of smartphones again.

      • “It’s doubtful that HTC will ever get back to where it was at in mid-2012, but it’s very likely that HTC will be able to make a profit off of smartphones again.”

        I disagree, if we define “profit” as “operating profit”. It will have gross margin, but after accounting for everything else – admin, marketing, etc – I think it will continue showing red ink. The general market is tougher now at those price points for Android phones, with less profit there for everyone even including Samsung. Xiaomi and Huawei are intruding into its Chinese markets, and expanding into others such as India and Africa. The US is becoming a Samsung hegemony for Android. I cannot see how HTC can make any difference there to change what has happened over the past 18 months, which leads to losses.

  2. Pingback: Probando el Moto X Play, iOS te ayuda a dormir, Google Maps va en bondi y Xiaomi tiene problemas de crecimiento | Los Mejores Celulares del Mundo

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.