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HTC Investors Head for Exits WSJ 08-08-2012By SPENCER E. ANTE And ARIES POONEven some fast-moving smartphone companies aren't moving fast enough. Two years ago, HTC Corp. 2498.TW -1.87% leapt to global prominence by becoming the first company to make phones powered by Google Inc.'s GOOG -0.35% Android software. But the company has since failed to fend off Apple Inc. AAPL -0.26% and Samsung Electronics Co.,005930.SE -0.31% giving investors reason to worry there won't be any room in the market for HTC. The most recent cause for concern was the Taiwanese cellphone maker's discouraging earnings report Friday, in which it said its second-quarter revenue dropped 27% and signaled more trouble ahead, including an expected drop of nearly half of its revenue in the current period. Investors reacted harshly this week, sending HTC's shares to a new low on Tuesday and knocking about $1 billion off its market value. So far this year, the company's value has dropped by more than half. It closed down its daily limit Tuesday at 240.50 Taiwan dollars ($8.04) on the Taiwan Stock Exchange. 
 Two years ago, HTC leapt to global prominence by becoming the first company to make phones powered by Google's Android software. But the company has since failed to fend off Apple and Samsung. HTC isn't like troubled handset giant NokiaCorp. UBSN.VX -1.31% or BlackBerry maker Research In Motion Ltd., IVZ +2.62%which have failed for years to come up with a robust competitor to the iPhone. HTC still makes a profit and regularly rolls out new smartphones. But the company is getting squeezed by Apple and Samsung. Those bigger companies have used their speed and scale to dominate the industry through heavy distribution and marketing of new models, while cutting prices on older high-end devices. Sanford Bernstein analyst Pierre Ferragu estimates that Samsung spends about six times more than HTC supporting its sales, while Apple spent nearly four times as much as the Taiwanese company. Operating with that disadvantage, HTC over the last year has seen its market share slump, as Samsung pushed out its Galaxy line of smartphones based on Android and Apple's iPhone 4S reached more countries. HTC's share of the global smartphone market peaked in the second quarter of 2011, reaching 10.7%, according to IDC. Now, its share of the business stands at just 2.2%. HTC banked on its flagship One Series smartphones to inspire a rebound, but they haven't sold well since the global launch in April. While top U.S. carriers Verizon Wireless, AT&T Inc., T -0.45% Sprint Nextel Corp. S -0.69%and T-Mobile USA distribute the new HTC smartphones, its products get far less marketing support than devices made by Apple or Samsung, IDC analyst Ramon Llamas said. "The last time I saw carrier support for HTC was during the holidays," Mr. Llamas said. 
 Investors reacted harshly this week, sending HTC's shares to a new low on Tuesday and knocking about $1 billion off its market value. Here, a woman walks past the company's logo in Taipei last month. AT&T said HTC is a key partner that has provided some of its top selling phones, which it has backed with heavy marketing and national advertising. Canaccord Genuity analyst T. Michael Walkley estimated HTC sold 9.2 million smartphones in the second quarter, far below expectations, as well as the year-ago quarter's sales of 12 million units. By comparison, Samsung shipped more than 50 million smartphones in the quarter, estimated data firm Strategy Analytics. And Apple sold 26 million iPhones in the quarter that ended in June—a figure considered disappointing for the company as consumers perhaps held off for a new model expected in late September. HTC Chief Executive Peter Chou said in an interview in June that the company is trying to increase its presence in emerging markets such as China and India in order to make up sales declines in developed markets like Europe and the U.S. The company is ramping up its marketing and expanding its distribution network. Still, Mr. Chou has resisted investors' calls for the company to venture into low-end smartphones, saying such a move will "destroy" its so-called premium brand image. Even if HTC is increasingly focusing on China, that strategy may also be difficult to execute, analysts say. China's overall growth is cooling, and HTC faces increasing competition from companies likeHuawei Technologies Co. 002502.SZ -1.28% and ZTE Corp., which are rolling out low-end, midtier and high-end phones at more affordable prices. With Samsung heavily pushing the Galaxy III now and the new iPhone expected to come out at the end of the third quarter, HTC told investors to expect further weakness for the rest of the year. The company wouldn't give a revenue forecast for the fourth quarter, raising doubts about when sales might grow again. Investors aren't giving the company the benefit of the doubt. Forty-seven foreign institutional investors have completely sold off their holdings in HTC since February, with another 88 reducing their exposure to the stock, according to market data provider FactSet.
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