HTC tanks 10%; bets on ‘trendy’ devices and VR

HTC shares tanked 10 percent on Friday after the Taiwanese electronics company reported disappointing earnings in the face of fierce smartphone competition.

The handset maker reported a second quarter net loss after tax of 8 billion new taiwan dollars ($253 million) on revenues of 33 billion new taiwan dollars.

HTC blamed weaker-than-expected demand in the high-end smartphone market as well as weak sales in China. However, it also admitted that it needed to make trendier devices.

"They don't have the marketing muscle that their biggest competitor Samsung has and they don't have the ecosystem Apple has got," Roberta Cozza, mobile analyst at Gartner, told CNBC by phone.

Mandy Cheng | AFP | Getty Images

"In the markets where HTC was strong, there is an array of new players mainly coming from China that are pushing into the markets," she added, referring to companies such as Xiaomi and Huawei.

'Trendy design' phone for Xmas

The company's financial chief was candid on Friday about the fact that HTC needed to reinvent its devices. He said the company would change tack.

"We are going to address more premium segment. Premium doesn't necessarily mean just a flagship quality…but also a couple tiers below flagship," CFO Chia-lin Chang said on a conference call with analysts.

Chang also announced on Friday that the company would be coming out with a device with a more "fashionable, trendy design" for the Christmas holiday season. He did not elaborate on the details.

HTC released its flagship One M9 earlier this year, with a focus on the stylishness of the phone. But this has done little to reinvigorate HTC's struggling smartphone division.

Chang also said on Friday that the company would also focus on profitability rather than market share. He added that in the "not too distant future, " the Taiwanese company would breakeven—even in the smartphone business.

This will involve reducing expenses "quite significantly," including through making job cuts.

Virtual reality punt

So what else is part HTC's plan to turnaround its business?

One plan is to focus on connected devices, such as wearables.

But perhaps the more interesting part was the focus on virtual reality (VR), in which Chang said HTC has an "early mover advantage."

HTC spent nearly $10 million on a stake in WEVR, a platform that allows users to make software for virtual reality products, in July. In addition, it is looking to launch its own VR headset called Vive later this year.

But VR is a nascent space and already there are a number of players competing, from Samsung to Facebook.

Analysts are unconvinced the punt on VR will help HTC's profitability in the near- term.

"VR won't help them in the short term. It is going to be hard for them," Cozza said.

HTC's struggles have been shared by other Android smartphone players. Samsung, Sony and LG have all had a tough time, but have other businesses to fall back on. Sony has reported strong results in its image sensor and games console unit, while Samsung's chip division is its bright spot. But it is unclear which business HTC can fall back on.

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