Quietly Troubling: HTC Q3 Sales Down 48% To $2.4B, Expects Even Weaker Q4 Of $2B

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HTC today officially released its financials for Q3, and the news continues to be bad for the Taiwanese smartphone maker: the company reported revenues of 70.2 billion Taiwan dollars ($2.4 billion), down 23% from last quarter’s $3 billion and 48% compared to the same quarter last year. The company also provided a trading update for the all-important holiday period encompassed by Q4 and the numbers are not pretty: it anticipates revenues of NT$60 billion, or $2 billion. Earnings per share are down by nearly 80% to NT$4.70 ($0.16).

The company does not report how many handsets it has sold, but figures out today from IDC put the number at 7.3 million for the quarter, a decline of 42.5% on last year. It still manages to get into the top-five handset makers with a 4% share. Still, it is proving no match for rival Android maker Samsung, which has over a 30% share of the world’s smartphone market with estimated shipments of 56.3 million handsets for the quarter.

These numbers put HTC’s strategy to launch daily deals in Europe, announced today, into perspective: the company is trying to focus on services not only as an alternative revenue stream, but as a way of driving users to its devices.

In its overview, HTC noted, as it did last quarter, that China continues to be a major driver of business for the company. That will point to HTC looking at selling lower and lower-cost handsets, I suspect, since these are the primary driver of sales in that market, especially in the uber-competitive area of Android-based handsets. (iPhone is another story, catering as it does to the premium market.) In any case, offering lower-cost handsets will also hit right at HTC’s margin.

And that margin is looking pretty bad: it says the gross margin for Q3 was 25%, down 3% since last year. HTC expects gross margin for Q4 to be 23%. Operating margin for Q3 was 7%, down from 9% in the last quarter and less than half of what it was a year ago (14.9%). Next quarter will be much worse: that operating margin will be only 1% next quarter.

Meanwhile, in other markets, HTC says that the U.S. is “in line with expectations”: Europe is “focused on enhancing brand consideration” (? developing brand profile, I suppose); and the company continues to invest in South Asia. But it does not break out the performance in those individual regions.

Operating profit is at its lowest point in five quarters, currently standing at NT$4.9 billion, versus NT$20.2 billion a year ago, a drop of 54%.

HTC has continued to push ahead with investments and launches to turn things around. They include two new Windows Phone 8 handsets that will be coming to market in November as well as a $35 million strategic investment for 17% of enterprise platform maker Magnet Systems. But it also took a charge of $40 million in its OnLive cloud-based gaming investment when that company hit bankruptcy and needed to restructure (as a new OnLive).

Unsurprisingly, all has had a big impact on its cash position, which is now at NT$202 million, down 23% on a year ago.