Samsung Soars While HTC Reports First Quarterly Loss

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TOKYO -- The diverging fortunes of two of the leading smartphone providers in Asia were demonstrated on Friday when Samsung Electronics of South Korea predicted better-than-expected quarterly earnings, while HTC of Taiwan reported its first loss.

Samsung, which is benefiting from its status as a leading maker of semiconductors as well as smartphones, said it expected to post operating profit of 9.9 trillion won to 10.3 trillion won, or about $9.2 billion to $9.6 billion, in the third quarter, up from 8.06 trillion won a year earlier. Sales are expected to rise to a range of 58 trillion to 60 trillion won, from 52.2 trillion won a year earlier.

The outlook contrasts strikingly with a report from HTC, which posted its first quarterly loss on Friday. The company posted a net loss of 2.97 billion Taiwan dollars, or about $101 million, in the third quarter, after net income of 3.9 billion Taiwan dollars a year earlier.

Both companies are feeling pressure on the low end of the phone market, where new competitors, mostly in China, are doing well in what is the fastest-growing segment of the market. HTC has focused on premium models, even though much of the growth in the smartphone business is now coming from the lower end of the market, where Chinese companies like Lenovo, ZTE and Huawei are experiencing rapid growth.

Samsung, however, has strength at the top. It also a diversified mix of products that provide additional cash. Samsung is not only the biggest maker of smartphones, it is also the leading maker of memory chips. It sells chips to other companies, like Apple, in addition to supplying them to its own smartphone production lines.

"Samsung's diversity of profit streams plus strength and scale in all tiers of smartphones helps them to continue to grow profits," Mark Newman, an analyst at Sanford C. Bernstein, wrote in a note to clients.

Samsung did not provide an explanation of its growth, but analysts said the company was probably benefiting from a recent increase in the price of memory chips after a fire at a factory owned by a Samsung rival, SK Hynix, in Wuxi, China.

While the torrid pace of sales of high-end smartphones like Samsung's Galaxy S4 has eased somewhat, the company sells a range of lower-price devices, too. This positions it to benefit from expectations of strong growth in low-price and midrange smartphones, analysts say.

Samsung's numbers were preliminary; final results are expected to be reported at the end of the month.

Over the last few years, the performance of Samsung has been roughly inverse to that of HTC, whose problems continue to deepen. Though HTC had previously forecast a quarterly loss, the number was even bigger than analysts had expected. The company's flagship smartphone, the HTC One, has failed to catch on with high-end users, who have favored devices from Samsung and Apple.

HTC's sales plunged to 47.1 billion Taiwan dollars in the third quarter from 70.2 billion dollars a year earlier.

According to Gartner, a research firm, the company's share of the worldwide smartphone market fell to 2.6 percent; in 2010 and 2011 it flirted with double-digit percentages of market share.

Horace Dediu, an independent telecommunications analyst in Helsinki, Finland, said it could be difficult for HTC to recover. When other phone makers posted their first quarterly losses, it was only a few years before their handset businesses were sold. Others got out of the phone business entirely.

What Mr. Dediu referred to as the "post-traumatic life expectancy of phone vendors" has been shortening. Motorola lasted five years; Nokia and BlackBerry only two.

"Once you hit any bump in the road, you are essentially derailed," he said. "In the phone space, you hit one bad quarter and you are out."

Only one major cellphone maker, LG of South Korea, has recovered from a deep crisis in its phone-making division, Mr. Dediu said. But for LG, its smartphone arm is just one part of a diversified conglomerate, like Samsung, helping it to ride out the dips.

HTC has also suffered from internal discord, and a series of executives have quit the company in recent months. One of the company's top design executives, Thomas Chien, was arrested in August in connection with a police investigation of theft of trade secrets from HTC.

Cher Wang, HTC's chairwoman, said in a recent interview that Mr. Chien, who could not be reached for comment, was trying to recruit HTC employees for a new company he was planning to form.

She insisted that the executive departures would have no effect on the company's operations, saying that all of the HTC material that the employees were accused of taking had been recovered.

"In terms of technology, it's not going to affect us," Ms. Wang said. "It will not have any detrimental effect on us."

The worse-than-expected results will put pressure on HTC to find a business partner, Mr. Dediu and other analysts said. There has been speculation that the company could link up with one of the growing Chinese companies looking to expand outside their home territory.

"The question is whether anyone in China needs them now," Mr. Dediu said.

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This article originally appeared in The New York Times.


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