HTC’s Halloween Horror Show

HTC Earnings Analysis

So HTC (2498) missed investor expectations again for its October performance. Surely this cannot surprise anyone? The company just missed third-quarter 2012 expectations literally days ago and warned for a fourth time this year. Is it even possible for HTC to really shock anyone? Well, yes.

We all know that the company has been in a tailspin since November 2011. And we know that the summer Desire model launches flopped, so fourth-quarter 2012 is going to be a dismal period even if the late-quarter model launches do well in November and December.

But still. The horror.

HTC not only delivered October revenue that was down 61% from October 2011 — the sales were also down 19% from the previous month. I know this sounds exactly like what I said when HTC reported its third-quarter numbers, but the company’s rate of decline is still so steep it keeps catching analysts off guard. Just a few weeks ago, industry mavens adjusted their models to reflect HTC’s dismal fourth-quarter warning, but the company’s October sales miss is so massive that it undershoots the consensus.

Nobody has 19% revenue decline between September and October. Not Motorola during its 2007 RAZR collapse, not even Nokia (NOK) during its 2011 Symbian sales crash. It’s just inconceivable that a company with sales that were already halved in September from the previous year is still delivering accelerating decline. This implies that there had to have been an inventory problem in late autumn. But the new Desire models were already clearly flopping in July/August period. Could HTC have been so reckless that it kept stuffing the channel during autumn even though it was clear that the summer models had already flopped?

October is a back-to-school month and a gateway to the Christmas season. It is always seasonally stronger than September, particularly for vendors like HTC that focus on business buyers and college students. For the past 11 months, HTC has been unable to offer accurate sales guidance for Wall Street. There is a distinct sense that the company simply does not understand and cannot manage the magnitude of its sales collapse.

So much is now riding on HTC’s new Windows Phone models. Everyone thought that Windows Phone was the last chance saloon for Nokia, but it might turn out to be the case for HTC.

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