HTC is struggling and will continue to struggle

HTC delivered its Q2 2015 financial results, and, as expected, there’s nothing to smile about.

The embattled Taiwanese company announced it’s back in the red, with an operating loss of NT$5.1 billion ($161 million) and a net loss of NT$8.0 billion ($252 million) at a revenue of NT$33.0 billion ($1.04 billion). The difference between the operating loss and the net loss is due to “idled assets” related to the production of the One M9. Basically, HTChad to pay for unused production capacity, to the tune of $92 million, following lower than expected demand for its flagship phone.

HTC provided a couple of graphics that really illustrate how deep the quagmire it found itself in is.

HTC revenues over the past 5 quarters

HTC operating profits over the past 5 quarters

Consider that Q2 2015 was the first full quarter of availability for the One M9. It was the time for the M9 to show its mettle and really help HTCreturn to growth. Instead, the device actually held back the company.

It’s going to get worse before it gets better. HTCestimates revenue of NT$19 billion to NT$22 billion ($600 million to $695 million). Put on graph, that would look like this:

HTC CFO Chialin Chang outlined the three areas the company will focus over the next months on in order to return to profit:

• HTC intends to implement further “company-wide efficiency measures to reduce operating costs across the organization and ensure resources are appropriately allocated to future growth.” We say “further” because cost-cutting is what allowed HTCto remain profitable (even if barely) in previous quarters. It remains to be seen from where will HTCcut costs next. The company already outsourced parts of its manufacturing, though higher-end models are still made in-house.
• HTC said that new devices that are more “trendy” are coming by the end of the year. These devices will “address premium segments” but they won’t be flagships. This sounds a lot like more Desire phones, which HTC has been billing as “premium mid-range.”
• HTC hopes to capitalize on new segments like VR, where it boasts a “first mover advantage.” But VR is still uncharted water, and we’re skeptical it will provide HTCthe deliverance it needs.

HTC is not, by any means, the only Android OEM that’s suffering right now, but its bout of sickness appears to be the result of a chronic disorder. CFO Chiang said that the measures the company is now taking won’t bear fruit until at least early next year. Expect another grim report in Q3.