HTC cuts sales outlook by 13%, expects to hit single digit margins in Q2

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HTC rebooted their image in February with the launch of the One series of devices, but apparently no one noticed. The Taiwanese company just slashed their Q2 2012 sales target by 13% to $3.05 billion. Chang Chialin, HTC’s Chief Financial Office, said weak sales in Europe were to blame for this revised figure, along with all the hubbub that’s been taking place at the U.S. border. What’s scary is that Samsung’s Galaxy S III is going to launch on all four of America’s major operators in the coming weeks, and then in Q3 we’re going to see Apple release the new iPhone. What’s HTC going to do to combat the competition? Cut prices. Along with the new sales target, HTC is also saying that margins are expected to drop from 11% to 9% during Q2, and while nothing was sad about Q3, it doesn’t take a rocket scientist to figure out that it’s going to fall even further.

Let’s take a step back and look at the industry as a whole. Why are Apple and Samsung dominating while everyone else is floundering? Starting with Samsung, they make many of the components that go into a mobile phone, so that’s one less middleman to deal with. They get screens, processors, RAM, and memory chips at cost. And as for Apple, while they don’t make components themselves, they do help their component suppliers out by paying for new factories and promising to buy everything said factory produces.

In other words, those two companies are much more vertically integrated than the competition. Meanwhile HTC is pretty much in the same boat as Nokia. They both depend on one company for software, another company for hardware, and then the only “value” they add on top is putting the pieces together in a pretty piece of plastic, metal, and glass.

How much longer is that sustainable?

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