HTC Sees Losses Looming, But That May Mean Cheaper Phones

Troubles continue to grow for Taiwanese electronics maker HTC, as it has warned that its third quarter might be a losing one. Part of the problem, says HTC, is the cost structure of the HTC One, but the company is looking to produce more mid to low-end devices as a fix.

HTC released its somewhat gloomy outlook on Tuesday in an earnings call, announcing that it was facing a bad third quarter. The phone maker said it was facing the first operating loss in the company's history, according to the Wall Street Journal. Part of the reason: lower than hoped for sales, tougher competition, and the HTC One.

"The HTC One cost structure is high, we have expected it to improve but it is not where we want it to be," said HTC CEO Peter Chou, according to ZDNet. The high-end cost, low sale scale of HTC's One smartphone has led to "a lot of overhead."

HTC is trying to put a silver-lining on the third quarter cloud, with Chou saying, "we are hoping Q3 is our bottom," later adding, "we are hoping to have breakeven if not even better, but cost structure is something quite complicated. Today the manufacturing cost is not our biggest challenge, we are actually quite efficient."

Chou is pointing the company in a different direction, saying that the company will stop focusing on the crowded and possibly over saturated high-end device market, and instead revamp its mid-range offerings, which are aging and showing signs of neglect. Building low cost smartphones with much less of a manufacturing overhead than, say, the solid aluminum-bodied HTC One, can lead to higher profit margins. Stressing that the company isn't going cheap, CEO Chou emphasized, "We insist on using better materials to make better products that offer premium experience."

What does that mean for consumers? While Samsung's Galaxy S4 and Apple's iPhone 5 have dominated the top-end of the smartphone market, other companies have struggled to succeed with their own flagship smartphones. But with smartphone ownership expanding regardless of social class and economic standing, there's plenty of room in the middle. Samsung and HTC have both released "mini" versions of their flagship smartphones, which are marginally less expensive. And Apple is rumored to (but almost certainly will) release a less expensive iPhone soon.

But more low-cost devices are probably on their way, especially for Android OS, and HTC's earnings call is further evidence of this. According to the Wall Street Journal, electronics makers that don't compete in the top tier, like LG Electronics Inc., Lenovo, and ZTE Corp. have all gained market share in their second quarters, based on market researcher IDC's findings.

HTC used to be the fourth largest smartphone seller in 2012, but has since slipped out of the top five companies. HTC, in the third quarter, expects its operating margin to fall from 0 percent to -8 percent, which is the company's lowest ever.