Shares of Taiwan’s HTC (2498TW) continued to fall today as the stock suffered aftershocks of the company’s having cut its Q4 revenue outlook on Wednesday.
HTC shares fell 7% yesterday in Taipei trading and were down again $36.50 in New Taiwan dollars, or almost 7%, today at $489.50.
The stock received one downgrade today, from Credit-Suisse’s Pauline Chen, who cut her rating to Neutral from Outperform, and cut her price target to $680 from $930.
Most of the damage is coming from “Apple’s (AAPL) expanded distribution channel,” she writes.
“In light of its downgrade in guidance and little evidence to support that new product ramp can be sufficient to offset the share loss in the US, we think it is difficult to argue for an Outperform call.”
Chen cut her per share estimates for this year and 2012 and 2013, given that lower revenue suggests the company may not be able to make an operating profit target of 14% to 15%.
For Q4, she is now modeling $104.6 billion in revenue and $13.85 per share in profit, down from a prior $125.1 billion and $17.59, again, all of that in New Taiwan dollars.
“We did not downgrade it to Underperform, as we do not think its business model is broken or HTC is losing its competitiveness,” writes Chen.
Another person trying to figure it all out today is Pierre Ferragu of Sanford Bernstein, who had been quite upbeat on the company’s prospects and declared himself shocked on Wednesday at the news.
Ferragu, who maintains an Outperform rating on HTC shares, this morning writes that there are three potential explanations.
One is that they’re slipping competitively, but he doesn’t think so as he considers HTC “the only credible #3 player” in smartphones behind Apple and Samsung Electronics (SSNLF).
Answer number two is that the company built “1 million units of excess inventory in six months” in North America, causing a more severe shortfall in the region.”
And thirdly, HTC may just be an early indicator of a more severe breakdown in European economic patterns.
Although Ferragu seems inclined to believe the latter two answers, and he’s keeping his Outperform rating for now, he warns investors to “tactically lower their position for now.”
In these circumstances, we caution investors on the possibility that we might be missing in our analysis a deeper problem in HTC’s business position. This said, the combination of our fundamental analysis, the fact that the company’s gross margin seems preserved and the quality of the positive feedbacks we have heard on the company at operators and distribution channels recently make us think it remains very unlikely.
And Adnaan Ahmad with Berenberg Bank reiterates a Sell rating on HTC stock and a $600 price target. The company’s “product portfolio has run out of steam,” he writes, “and growth in its largest market (the U.S., which accounts for over 50% of revenues) has come to a halt given the Apple and Samsung product portfolio.”
The downward slope of a weak product cycle, writes Adnaan, brings with it not just revenue but also average selling price, margin and stock multiple compression. And it is never resolved in just one quarter, he writes.
“We believe there will be further downgrades, the stock is well-owned (still), well-loved (still) and many investors have been saying to us that it is cheap [�] but, as we have stated on numerous occasions, you should not buy ‘cheap’ tech.”
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