Tough times for the ‘biggest victim’ in smartphone war

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Taiwanese smartphone maker HTC is the "biggest victim" of the intensifying battle in the premium handset space, said Citi, and going by history, there is little scope for the struggling company to stage a turnaround.

Following the company's grim earnings announcement on Tuesday, Citi, which has a "sell" recommendation on HTC, cut its 12-month target price on the stock to 97 New Taiwan dollars ($3.23), from 134 New Taiwan dollars, previously. The revised target marks 39 percent downside from current levels.

"The overall high-end demand slowdown forced Samsung to get more aggressive on marketing dollars, which in turn forced other vendors such as Sony and LG to follow. However, HTC, constrained by more limited resources, was not able to follow, which makes [it] the biggest victim of high-end demand weakness," Kevin Chang, analyst at Citi, wrote in a note published late Tuesday.

(Read more: Facebook can't save HTC as earnings miss: Analyst)

HTC shares traded limit-down on Wednesday, plunging almost 7 percent, on concerns over the company's profitability after it warned a day earlier that it expects to post its first operating loss in the July-September quarter. The company said its operating margin in the third quarter may shrink to between zero and negative 8 percent, from 1.5 percent in the previous quarter.

HTC reported an 83 percent year-on-year drop in profit for the second quarter to 1.2 billion New Taiwan dollars.

Citi says HTC, which was a leader in Android smartphone sales in the U.S. just a few years ago, will struggle to reverse its fortunes given rising competition among smartphone players and pressure to get more aggressive on pricing.

(Read more: Smartphone 'saturation' fears for Apple, Samsung)

"Historically, we have not seen a handset company stage a successful comeback. Sony is probably the closest, and it took them around 5 years. Nokia, Blackberry, Motorola and LG are all still struggling," Chang said.

"With high-end demand slowing and Apple's big-screen iPhone likely in mid-2014, next year could be even tougher," he added.

(Read more: Smartphone price drop: Is this when it starts?)

Citi was not the only bank to slash its target for the stock. Nomura, albeit less pessimistic on the company's prospects, reduced its target price to 135 New Taiwan dollars from 180 New Taiwan dollars, saying that it was not convinced that the company's new mid-tier products would help its margins. HTC has recently stepped up its focus on the mid-to-low cost segment, unveiling last month the Desire 200 - a smartphone targeted at price-sensitive consumers.

HTC shares have plummeted 47 percent year-to-date, compared to shares of rivals Samsung and Apple which have declined 16 and 15 percent, respectively, over the same period.

—By CNBC's Ansuya Harjani; Follow her on Twitter: @Ansuya_H