A 60 percent plunge in HTC Corp.’s stock this year pushed its market value to below its cash on hand. That means investors were effectively saying the smartphone maker’s brand, factories and buildings were worthless. HTC’s market price fell Monday to NT$47 billion ($1.5 billion), below the NT$47.2 billion cash it had at the end of June. A drop of as much as 9.8 percent in its stock before a late rally signaled investors put no value on the rest of the company.
“HTC’s cash is the only asset of value to shareholders,” said Calvin Huang, who has a NT$46.50 price target on the stock at Sinopac Financial Holdings Co. in Taipei. “Most of the other assets shouldn’t be considered in their valuation because there’s more write-offs to come and the brand has no value.” HTC’s fall from a market capitalization of more than NT$900 billion in 2011 charts the perils of a product and marketing strategy that’s failed in the face of stiffer competition from Samsung Electronics Co. and Huawei Technologies Co.
Once the best-selling brand in the U.S., the failure of its One, Butterfly and Desire smartphones to drive sales has pushed HTC outside a global top-10 now dominated by Chinese brands. Its forecast for third-quarter sales of as much as 48 percent below analyst estimates follows a 35 percent cut to projected revenue in the preceding period and indicates that the Taoyuan, Taiwan-based company has little chance of regaining market share in the short-term.
HTC didn’t respond to an e-mailed request for comment. There will be no one-time non-operating items this period, Chief Financial Officer Chang Chialin said Aug. 6.
Shares of HTC fell to as low as NT$56.80 before closing at NT$57.50 in Taipei. With HTC having 828 million shares on issue, the cash-per-share is NT$57. The forecast loss-per-share for this period, which was five times wider than estimated, sparked analysts to slash their share price valuations of the stock by 17 percent to NT$55.54. Analysts also now see profit eluding HTC through the end of 2017 and none of the 22 tracked by Bloomberg that updated their view in the past three months recommend investors buy the stock.
While HTC has no long-term debt, 34 percent of its asset value comes from inventory and accounts receivable, according to Bloomberg calculations. Its inventory, measured in turnover days, jumped 60 percent in the 12 months through June 30. To reverse sales that have fallen by more than 75 percent since the September quarter of 2011, HTC plans to cut costs and focus on the high-end market where profits are higher. Reductions will start in the current period and start to show results by the first quarter, Chang said.
“We think these efforts are not enough to turn HTC around in the next two years,” Birdy Lu, an analyst with Deutsche Bank AG, said in a report dated Aug. 7. “HTC has little chance to compete with iPhone and Samsung given limited resources, and might continue to lose shares to Chinese brands in mid/low-end segment.”