How low can it go?
Although Nokia has been catching headlines for their downturn in market performance, HTC too has also been feeling the pinch of poor profits.
Nokia yesterday finished the week off at $1.92 a share, falling below the $2 mark for the first time since September 1994. A lot can be made of that $2 number which is more of a psychological barrier than anything real but make no mistake, Nokia is feeling the financial pinch.
The drop seems to correlate with new rumors that Amazon may be making a go at its own phone which results in fears of tougher competition down the road. Combined with the Mozilla news earlier this week, the Eurozone financial crisis, lagging sales of the Lumia line and no confidences from investors and you have a plummeting stock price. It’s a vicious cycle and often one not hinged on reality.
Seeking Alpha actually has a nice summary of the Nokia situation. In short, they are still optimistic as Nokia should be fine for the next 12 months and they don’t foresee any more bad news for Nokia i.e. the worst may finally be out of the way. Nokia is poised to cut 10,000 jobs by 2013 and continue to restructure, reducing overhead costs in the long term. The question for would be investors is should you buy Nokia yet? At least for one contributor at Seeking Alpha, the answer is “almost” as the stock may still dip lower but a return to profitability status is expected sooner than later...
Things aren’t looking too great for HTC either as they’ve just posted their Q2 2012 financial results (PDF) (see Reuters). The Taiwanese manufacturer has had two bad quarters so far and while things have improved they’re still getting ugly. For Q2, HTC has reported a 57.8 percent net profit drop resulting in profits of T$7.4 billion ($250 million) but down from T$17.52 billion this time last year.
The HTC One X is facing stiff competition from Samsung
The reasons for HTC’s poor performance are varied from the Eurozone crisis, lukewarm reception to their One series, the temporary blockage of imports by US Customs and strong competition from Samsung. With Android, HTC has very slim profit margins (HTC pays Microsoft a royalty on patents) and litigation from Apple has really taking a toll. On that latter point, US Customs temporarily held up the One X (review) and Sprint's EVO 4G LTE (review) from hitting shelves, resulting in weeks of trickling sales. In addition, complaints of poor battery life and customers waiting on Samsung’s Galaxy S III model leaves little room for failure.
Although Samsung is doing well with their Galaxy series, HTC shows how pushing Android is not an easy task, even when you’re the #2 guy selling it. For those reasons we suggested that it was a good thing Nokia didn’t adopt Android back in early 2011. Nokia’s volume of sales would presumably have been higher but net profit would have been razor thin, especially since Nokia’s supply chain and manufacturing costs are still higher than HTCs. (Maybe HTC will have a boost with Windows Phone 8 in the fall?)
In the end, very few smartphone OEMs are exploding with sales right now. Samsung and Apple seem to be the exception with most companies being dragged down with a global recession, stiff competition and market uncertainty.
For Nokia though, it looks like they may be approaching bottom which means they can only go up, right?