HTC's (HTCKF) Q1 2014 Results - Earnings Call Transcript

May. 6.14 | About: HTC Corporation (HTCKF)

HTC Corporation (OTC:HTCKF) Q1 2014 Results Earnings Conference Call May 6, 2014 3:00 PM ET

Executives

Chia-Lin Chang - President, Global Sales and CFO

Edward Wang - EVP, Finance

Christine Chi - Manager, Investor Relations

Sally Kuo - Manager, Investor Relations

Analysts

Richard Kramer - Arete Research

Arthur Hsieh - UBS

CK Cheng - CLSA

Anne Lee - Nomura

Robert Yen - Goldman Sachs

Operator

Welcome everyone to HTC’s 2014 First Quarter Results Conference Call and Webcast in English. Today with us, we have CFO and President of Global Sales, Mr. Chia-Lin Chang; EVP of Finance, Mr. Edward Wang; and Manager of Investor Relations, Ms. Christine Chi and Ms. Sally Kuo.

All lines have been placed on mute to prevent background noise. After the presentation, there will be a question-and-answer session for investors and analysts. Please follow the instructions given at that time if you would like to ask a question.

For your information, this conference call is now being broadcasted live over the internet. Webcast replay and English transcript will be available within an hour after the conference is finished. A Chinese translated transcript will be available within a week after the call is finished. Please visit www.htc.com under the Investors section.

And now, I would like to introduce Ms. Christine Chi, Manager of Investor Relations. Ms. Chi, you may begin.

Christine Chi

Thank you, Operator. Good morning, good afternoon and good evening, ladies and gentlemen. Welcome to HTC’s [2004] (sic) 2014 first quarter analysts call. This is Christine Chi, HTC’s IR Manager.

The event is now being broadcasted live via HTC’s website at www.htc.com. If you are joining us through the dial-in line, your call is now being placed on mute. As this conference is being broadcasted by investors around the world, we will conduct this call in English only.

The format for today’s call will be as follows. First, I will have to summarize our operations for first quarter of 2014, followed by our guidance for the second quarter. Afterwards, our CFO and President of Global Sales, Mr. Chia-Lin Chang and EVP of Finance, Edward Wang will lead Q&A session.

Before we begin, I would like to draw your attention to the disclaimer statement on page two of the presentation slide. Please note that this presentation contains forward-looking statements. These statements are based on -- expectations. Actual results may differ materially from our expectations and the company undertakes no obligation to update these forward-looking statements going forward.

If you have no question, I may begin to give the overview for the first quarter of [2004] (sic) 2014. Please turn on to page three. Page three, first quarter financial highlights, revenue for first quarter was NT$13.1 billion, with gross margin of 20% and operating margins of negative 6.2%. Net loss after tax was NT$1.88 billion or NT$2.28 per share negative.

Business overview, for the first time, HTC One (M8) was launched with all four carriers in the United States. Momentum was further supported by the launch of an exclusive HTC One (M8) Harman Kardon edition in partnership with Sprint, demonstrating strong carrier support and HTC’s best-in-class mobile audio technology.

EMEA sales remained sound, largely due to a successful launch of HTC One (M8), as well as continuous momentum from in-life products, including the HTC One (M7), the HTC One mini and HTC Desire 500.

Similarly in China and India, both HTC One (M8) and HTC Desire 816, both are 4G-LTE enabled, that demonstrates strong momentum. HTC Desire 816 in particular has successfully positioned as an unparalleled mid-tier flagship and received overwhelming consumer response in both markets. It is now starting to rollout in additional markets.

In Taiwan, the HTC One (M8) has dominated the market since March. Momentum in India for HTC One (M8) and Desire family products remained strong.

Page four, product innovation, HTC One (M8) features all-new HTC Sense 6, a high quality metal casing unibody, Duo Camera and -- HTC BoomSound. The new HTC Dot View casing being innovation -- bring innovation to accessory offering.

The HTC Desire 816, a design element from the HTC One family, making one of the best value -- smartphones ever introduced by HTC and raising the price for the mid-tier segment.

Awards and honors, The HTC One (M8) is continuing in the footsteps of the original HTC One (M7) and has garnered well praise from experts, partners and customers since March. Speaking to the strength at same [power] (ph) of HTC existing offers, as GSMA further named HTC One (M7) is Smartphone of the Year at 2014 Mobile Congress in Barcelona.

And also aware of the prestigious iF Gold Award from iF Design and HTC Desire 816 also garnered positive attention including being named as the Best Mid-Range Phone from Android Authority.

Page five, page five gives an overview of revenues and operating profits. Revenue for Q1 came in at NT$33.1 billion. Operating profit reported a loss of NT$2 billion.

Page six, page six gives overview of gross margin and operating margin. Gross margin for Q1 is 20% and operating margin for Q1 was negative 6.2%.

Page seven and page eight, the financial overview for finance -- income statement and balance sheet.

Page nine, the guidance for our second quarter of 2014, revenue is expected to be in a range of NT$65 billion to NT$70 billion. Gross profit margin is expected to be at 21.3% to 22%. EPS is expected to be in the range of NT$2.21 to NT$3 per share.

This wraps up the content of our presentation. And now, I would like to turn the podium to HTC’s CFO, President of Sales, Mr. Chia-Lin Chang for opening remarks.

Chia-Lin Chang

Hello, everyone. This is Chia-Lin. Thanks for joining the call. Before I open up for questions, I have a couple statements to make because these are tend to be mostly -- most commonly ask questions.

First of all, in terms of guidance, we guided around NT$65 -- in the range of NT$65 billion to NT$70 billion total revenue for second quarter and the EPS has guided mentioned by Christine, well, we are looking for here is the possibility as we mention that we expect to turn into profitability in the second quarter and also as you can see the profit in second quarter will cover the loss in the second -- in the first quarter as a result of we aim to -- of the Safe Harbor statement, we aim to turn into the breakeven to slightly positive for the first half of the year. So we can have a clean start, that’s the number one.

Number two, in terms of selling, everybody is very focusing on the selling of M8 -- HTC One (M8). The HTC One (M8) is selling better than the HTC One (M7) in 2013 from the sell-in, from the sell-out perspective. So we’re looking to sustain a momentum. Obviously, this is a sustained gain in their product. So we’re looking to all sorts of campaign to sustain and increase the volume, that’s number 2.

Number 3, as we’ve been talking about it, we are strengthening our mid-tier portfolio. Our Desire 816 got award in Barcelona in the Mobile World Congress. We launched first in China and now are getting into some of the countries as well.

Some of you observed as well the momentum of Desire 816 is actually quite strong. So we are also looking forward to continue the momentum in countries we introduced and also into the countries we are going to introduce. So that’s the third point, I’ll make.

Number 4, we have greatly optimized and improved our launch readiness. What I mean that is we basically had greatly shortened the time from the announcement to the availability on a shelf. That required a lot of coordination between product team, operation and sales team. So we have greatly improved and this is something that I will continue to further optimize in that regard.

The final statement we’ll make here is the -- some of the countries, especially notably China and including in Taiwan itself are turning into the LTE within HTC will be very capitalized given that we are first introducing LTE-based smartphone globally. Very well capitalized, as you can see when we introduced some of the LTE-based mid-tier phone in addition to flagships out here. We’re looking forward to more exciting, the opportunity and product into the second half as well.

So I’ll end my comment here, multiple side comments and open up for questions.

Christine Chi

Operator, please start the Q&A session.

Question-and-Answer Session

Operator

(Operator Instructions) The first question is from Richard Kramer, Arete Research. Go ahead please.

Richard Kramer - Arete Research

Thanks very much guys. Chia-Lin, could you go into bit more detail about the revenue guidance? Are you confident that you already have the firm orders in hand from the channel and from the operator community to make these numbers and to involve the more than the doubling of sales? And equally have there been any production issues with the M8 in terms of component shortages that might limit your ability to undertake a massive ramp like that?

And then the second question is can you talk through the cost base? And how you see R&D and especially marketing expenses progressing for the rest of the year given that, as you mentioned, it's so important to continue the momentum and not just have one great quarter, launch quarter. And obviously there's some prominent competitive launches coming in the second half of the year that you will need to be mindful of? Thanks.

Chia-Lin Chang

Thank you. Thank you, Richard, for the question. Let me answer a couple in sequence there. In terms of the guidance, NT$65 billion to NT$70 billion on that, and looking in terms of our cost level, I think this is our cost level, that’s the level provided. I won’t be able to give you more granularity.

But you will see that now or you will see that shortly, I don’t know our team has basically uploaded system for the company sales for the month of April. With that, as you see the trend and hopefully I’ll give you more comments around that. That’s on the revenue side.

And on the second in terms of component, the restriction of constraint in there as far as we are aware. I don’t see that the component constrain in that. So we’re looking towards to continue the supply in light of the end market demand.

Third, in terms of R&D as the sales and marketing. First of all, I don’t see any thing unusual in R&D. So we’ll refer to some of the financial statement in there. That’s pretty much business as usual. I will continue to make further and further efficient the comment quite a few times in terms of the R&D strength of HTC.

On the sales and marketing, our goal in sales and marketing if I can elaborate a little bit more on that. Our goal is in each sales and marketing, the additional dollar spent in creating incremental revenue in the past year. We see this is not exactly a rocket science. There is a lot of judgment in that regard. Our goal is to sustain that momentum.

So we’re not just by cutting down this is a little bit. We got to continue spend as some of our leadership already commented on that. This is quite point to that. With that said, we are actually doing in a very disciplined way. You will see that, we will continue to focus more on sales and marketing and also on our efficient spending of dollars. So if you refer to some of the percentage, we do watch it carefully but there is no hard rule in terms of spending the percentage of sales. We do watch it sort of as a reference in that. So we can see for the purpose, having a disciplined spending but there is no hard rule to that. So hopefully I’ve answered all of your questions.

Richard Kramer - Arete Research

Okay. Thanks.

Operator

Our next question is from Arthur Hsieh from UBS. Please ask your question.

Arthur Hsieh - UBS

Hi. Thank you and good day. Congratulations to the turnaround. I have a couple of questions. First is with regard to the second quarter profit guidance, may I ask what is the tax assumption? Is there any reversal of the cumulative loss from the previous quarters and is there any major non-operating item that helped the bottom line?

Chia-Lin Chang

No. I don’t think there is and this is on a standalone second quarter. It’s nothing to do with the first quarter. So I want to make clear with that. And the second quarter on the EPS, probably you’ll see some of the uploaded system as required by regulation. You have more details sort of of eye on eye from P&L. So you’ll see that it’s a pretty regular P&L in that without any sort of non-items or cumulative stuff like you mentioned.

Arthur Hsieh - UBS

That’s great. The second question is with regard to the major models for [One 8] (sic) One (M8). In the presentation, you mentioned it's being available in the U.S. May I ask is there any country or region that you have not launched the product yet? And same thing about the [Desire 8] (sic) Desire 816. I think the question is about what are the remaining territories that could potentially keep up the momentum into the third quarter that's not included in the second quarter guidance?

Chia-Lin Chang

When you say -- you mean HTC One (M8), I think in the U.S.? That’s what you referred to? I just want to clarify your question.

Arthur Hsieh - UBS

Right.

Chia-Lin Chang

So I think we largely have supplied HTC One (M8) to majority of countries and maybe very, very select few that we just have [Technical Difficulty] supply in the first batch. Some of the company, some of the major big company -- big countries in terms of volume consumption is coupled around the replenishment already. So that’s on M8.

On Desire 816, we started out in China as most of people are aware. We’re rolling out to some of the other countries as well. So in the process, during the month of May, we’re rolling out to some of the other major countries as well, maybe getting into the month of June in terms of launch and it would be more precise in terms of availability on the shelf.

Arthur Hsieh - UBS

Okay. So, can I say you aim to pretty much complete the rollout globally within the second quarter?

Chia-Lin Chang

For HTC One (M8) and Desire 816?

Arthur Hsieh - UBS

Right. Right.

Chia-Lin Chang

Correct.

Arthur Hsieh - UBS

Thank you. And the third question is about the competition. I think especially in China this is the first time that you launched a product with such an affordable pricing and obviously it's well received by the market. But after you launched the product, we have seen a couple of new models coming out with very aggressive price cuts. So, I'm just wondering for China specifically, do you aim to maintain the current pricing or is there any need for a potential price adjustment to address the competition?

Chia-Lin Chang

Let me answer you in two different ways. First of all, I would need to correct you for clarity sake. This is not the first time we’ve launched a mid-tier hero product, you can call it. I think in 2012, as I mentioned in some of the other occasions and we actually did that and actually have been quite successful. Yes, we will somewhat will focus on the HTC One and 7 in 2013 at the, sometime at the expense, the opportunity for the mid-tiers. I want to clarify on that to your first point.

Second, the competition is always there, I think the competition in HTC. The Desire 816 is the hero product, a combination of quite a few factors. The highest performance ratio is one of them. Actually people buying that kind of phone at that kind of price tier require a couple of things as I’ve talked about in the past about the brand.

Innovation, the design and the appearance, what is the size or not and the price performance ratio, I think the combination of those. Whether competition, we actually are very confident about the competition. As people know, China is very competitive in the country in terms of smartphone market. In terms of the how we do the -- in terms of the sale tactics and other campaigns I won’t be able to comment in more specific. I will only give you one point. Since our launch, we continually have been seeing that increase in the sell-out. So, despite, I think we still launched in I think probably towards the third week of March. So it's about the five weeks to six weeks or so. We are actually seeing the increase in the sell-out and frankly speaking, we have not fully launched all - some of you probably know because this is in the market. We have not fully launched in all three standard in China as well.

We are also in the process of launching it -- to star launching it in Taiwan. We have possibly launched in some of the other major countries as well. In Taiwan, I think it’s very well received. By the way, I didn’t mention the HTC One (M8) for our North Asia Head. You'll be thrilled to hear that. I think the -- on the flagship sale of HTC One (M8), we are actually doing that in Taiwan.

Arthur Hsieh - UBS

That's great. Last question is what have you done after you took on the role as President of Global Sales and how do you balance the work in two important roles, because you are also the CFO at the same time? Thank you.

Chia-Lin Chang

Arthur, in terms of timing or in terms of the bandwidth?

Arthur Hsieh - UBS

Yes, bandwidth and overall. We have seen a good improvement in terms of the overall sales and apparently you've done a great job. So, just wondering what exactly have you done to improve these sales operations?

Chia-Lin Chang

I can tell you for sure now, just so you know, the improvement is not by one person. Improvement is under direction of Peter. He basically has people to focus, coordinate and we do a lot of interesting things internally. Probably outside people don’t know. So people are lot more focused on that. Me just focusing my part of things in terms of the whole team staff globally. This is a good start for us. I think our internal teams are very encouraged by it.

Obviously, this is a sustained gain in there for us and in fact a changing game in that regard. So that’s what I will comment in terms of it. I think on the sales side, we are getting organizational changes. We are actually getting our focus on different countries and different distribution and the whole channel, et cetera. So there is a big exercise going on under Peter’s leadership there. So we all -- the team is very motivated globally, so we are very excited about our future.

Arthur Hsieh - UBS

Thanks very much.

Chia-Lin Chang

Thank you, Arthur.

Operator

(Operator Instructions) The next question is from CK Cheng, CLSA. Go ahead, please.

CK Cheng - CLSA

Hi. Thank you for taking my question. Chia-Lin, I just want to clarify the second quarter guidance. You are looking for about NT$65 billion to NT$70 billion revenue in the second quarter. And you also mentioned that the M8 sell-in and sell-out is actually better that M7 last year. At the same time, the mid-tier devices is also -- the product portfolio is also stronger than last year. So I just wonder why in the second quarter revenue this year was still lower than last year. Can you give us a little bit more color on that?

Chia-Lin Chang

So let me give you a comment on it. We are very clear on what I said and hopefully, I answer some of your questions or some of people’s questions in the audience there. I think the -- first of all, what I meant, M8 -- the sales in M8 is actually better than M7 what I meant just here precise. On an apple-to-apple comparison, as of today compared to the same period time last year, we had more sales. We had more sales in M8 and we have accumulated more sell-out of M8 compared to the M7 and if people want to get more granularity, I can give your more specifics, the percentage of [Technical Difficulty] and the percentage ratio is also higher than the ratio of M7. Again, this is a good encouraging start although we need to sustain it to the best number one.

Number two, the Desire 816, we just get started and that we are growing out to different countries in that. The third thing in terms of the -- I’m aware of our second quarter sales in 2013 is NT$70 billion, now we guided about NT$65 billion to NT$70 billion. We actually just want to feel a bit more comfortable, that’s number one. Number two, comparing this versus the same year last year, probably that’s not something I look at it so internally. I’m looking more of a quarter-over-quarter because we are in the process of reevaluating from the lowest as we commented in the first quarter.

And so we know a lot of products that we have in 2013, we basically yield out in 2000 -- and this quarter of 2014. And the last thing, we need to supply in order to make big room, making the channel healthier for us to supply new products in there.

So even if it seems that the accumulated basis, this is application or a product in there, it sounds like (indiscernible) than the similar quarter last year, but that I wouldn’t worry too much about it. I think from momentum perspective, from a new product introduction perspective here, I think this is something now we feel positive. In addition to M8, if I can give you more color on Desire 816, in my view this is probably the first time since 2013 we have a mid-tier product, we are going to have a -- the biggest life cycle volume compared to the product we introduced in 2013.

CK Cheng - CLSA

Thank you, Chia-Lin. And if I can just ask a second question is that if you look at 2012 and 2013, your third quarter revenue all come down -- in terms of sequentially, it comes down like 20% or 30% quarter-on-quarter. Is there anything you’ve done this year that we can expect that the sequential-wise the revenue won't see that much of decline or even going up sequentially?

Chia-Lin Chang

I think it has -- I will comment on two things. First of all, I won’t be able to comment on third quarter given the regulation and it is still far out. So it’s probably not proper for me to comment into 2013. But I would say following, it’s a combination of sustaining existing products you have and also the introduction of new product. It will be combination though of getting to the third quarter. I think it’s rightly you guys focusing on how HTC can sustain into third quarter. I think real focus on that as well. So hopefully, we will make improvement on that.

CK Cheng - CLSA

Got it. So just maybe I'll ask a last question and I'll jump into the queue again is actually in the past two years smartphone accounts were almost 100% of total sales and we see that HTC actually scaled back from the investment into say tablets or even wearable devices. Should we expect -- or are the company looking for non-smartphone presence in the second half or even 2015 to drive the revenue momentum going forward?

Chia-Lin Chang

So first of all, I will make the following comments. One, the HTC has not scaled back on R&D and HTC has not scaled back on so-called a non-smartphone if you define it that way in a narrow way. To us, it’s a quite steam of connected devices in there. So we have not. So the reason we did not introduce product in the last 12 months or so or longer, that doesn’t mean that we did not invest in here. Beyond that, I won’t be able to comment on a specific things or timing, etcetera. But I just want to clarify like you said, we do feel like -- if I can tell you our R&D team and some select people in sales involving that and that they all very excited including myself of course, very excited about our second half.

CK Cheng - CLSA

Thank you very much, Chia-Lin, and congratulation again for the good second quarter guidance.

Operator

(Operator Instructions) The next question is from Richard Kramer, Arete Research. Go ahead please.

Richard Kramer - Arete Research

Chia-Lin, thanks very much. Can you talk through what the cause of the decline of about NT$10 billion in cash this quarter was. It doesn't look like inventory is up that much. We don't have the full details yet, and I can see that payables went up a bit as well. And can you also talk about, when you look out -- I think you didn't really answer the question about later in the year. You have some high profile model launches from some of your principal competitors. And what do you need to do to sustain this momentum when you are selling into a high end, which is relatively saturated? Do you need to broaden massively the geographical reach of your mid-range products? Do you need to go down into the low-end smartphone market where there's a lot of growth and a lot more competition? Can you just talk through that, how you are going to manage the pipeline for the rest of the year? Thanks.

Chia-Lin Chang

Richard, I would first answer your some of the financial questions. If you need more details, we have our expert in-house as for answering you, Edward is on call. Now I will take a second question in that sequence.

First of all, on cash level, there is a combination of three things. One, because there are some sort of backend payment of the licensing related and there are some prepayment in that, they will happen in one quarter. So there is this meaningful sum of that actually that’s coming up both the backend payments for the accumulation of 2013 plus the prepayment. That’s one. Second is because you can see in the preparation in procedure there, there are some working capital needs. And the third thing obviously is the -- as we continue to increasing sale, there is a delay in payment because of the normal time delay. So, the combination of those. We can give more detail at the call because you had further questions.

Edward Wang

Just to answer your question, without commenting specifically on products now, I will comment the following way. Our strategy is very clear. Our strategy is using the flagship high end to carry the rest of the product portfolio. Let me give you more specific, we’re looking forward in 2014 to have incremental more sales whether in units or in value of HTC One M8 versus HTC One M7. By the way HTC One M7 was the best selling model in HTC history. So that’s one thing.

The second, we are going to, we want to, we tend to dominate in the mid tier. We believe we have the capability, the combination factor and this is what consumers need. We believe with our fast speed of engineering team products in gear, we are able to reestablish our leadership in the mid-tier era that we had in 2012, so that’s some of our product portfolio. We also -- we will actually see in the market participate in the affordable segment. In affordable segment we understand the competition is even people buying in the affordable segment is very different segment compared to the people buying in mid-tier, tight performance especially the hardware parameter and the cost is the primary driven factor. However, in some of the industrial economy maybe surprised brand is also quite important. So we think we can grab the market share. We intend to participate in that. So that’s the overall strategy in terms of the product portfolio perspective.

Richard Kramer - Arete Research

Okay. But in terms of the affordable segment in the past you haven't really wanted to go to that segment for reasons of not wanting to damage the brand and also because clearly that segment is -- it's almost entirely price driven in terms of competition. Do you think you can find a balance now where you can actually sell in sort of NT$100 plus/minus category which we call affordable and still actually make profit?

Edward Wang

Yes, if you define NT$100 or so in retail price that would be fine in my or in our definition internally, probably it’s a tab lower and affordable. And when I define the affordable, it’s probably about NT$150 million to NT$200 retail price, that I will define more as affordable end rather than it goes down to the NT$100. When I said affordable part of it here in the past, one of the driving consideration is whether we able to provide differentiated experience at that affordable level.

Give me example, at that affordable level, are we able to provide a good lengthy experience for consumers in that. And some of those are similar along the kind of thought. In that segment, in certain markets, China, I think is more specifically -- the hardware parameter is basically a dominant factor here. Regardless the brand here, it’s a very mutually competitive in terms of how our parameter and versus the price.

But the other parts of the world, including industrial economies or including in emerging economies there, the brand and experience associate that innovation there play role as well. I can tell you very comfortably that in very high industrial economies when they wanted to give out sort of the entry levels 3G phone for consumer migrating in there, I think HTC will commence on bringing its premium value and that’s basically as a result of the brand equity we’ve accumulated. So that’s our advantage compared to some of the X brands and old brands if I clarify it that way.

Richard Kramer - Arete Research

Okay. Thanks very much.

Chia-Lin Chang

Thanks, Richard.

Operator

The next question is from Anne Lee, Nomura. Go ahead please.

Anne Lee - Nomura

Hi, Chia-Lin. I have one question. Because it seemed second quarter revenue or sale will have a significant rebound and the product mix also shifting a lot to the new product and the high-end product, why the margin doesn't show a significant improvement?

Chia-Lin Chang

Yeah. I was looking for one of the analysts who asked the similar question, so I thank we will answer that question. As because the -- I won’t be able to give you the margin, but some of the specific part there is because the some of the major 2013 products is going to yield out in this quarter here, so it will average out. That’s what we thought of it.

Anne Lee - Nomura

So if excluding those one-off issues, the margin should be a lot higher, right?

Chia-Lin Chang

Well, it depends on how you say a lot higher, so I won't give you a detailed quantitative number here. But if you take out those that it’s meaningfully higher. I don’t know how…

Anne Lee - Nomura

Meaningfully higher, okay.

Chia-Lin Chang

It’s very danger to say meaningfully higher or materially higher in this part of the world. But yes, it’s higher than the…

Anne Lee - Nomura

Okay. So if we look at M8 because this year it already is around -- smoother than last year and also no component -- significant component issues. So M8's margin should be better than M7. Is my assumption right?

Chia-Lin Chang

Well, I think it give you the kind of this specifics here because kind of dangers in that and that’s the reason I am not -- I don’t want to get into product specific margin in order compare. But me not answering doesn’t mean that either by itself. What I can tell you here is yes, M8 is higher than the current margin we’ve guided for sure.

Anne Lee - Nomura

Okay, thank you.

Chia-Lin Chang

Thank you.

Operator

The next question is from Arthur Hsieh, UBS. Go ahead please.

Arthur Hsieh - UBS

Hi, thank you. Just a follow-up, what is the company's profit strategy in terms of tablets and also wearable? Especially on wearable, it seems like available models in the market so far it's -- not all of them is successful. So would you think this is something -- well, it's pretty much being quoted many times that the management said there will be some models coming out. So would you elaborate what's the thinking behind wearable and would you still consider to go back to the tablet market? Thank you.

Chia-Lin Chang

Yeah. Arthur, I hate to disappoint you by not commenting on it, but really cannot comment on it especially in here. We do feel excited about second half product line up and hopefully you’ll agree when you see those.

Arthur Hsieh - UBS

Can I take it as couple as just one of…

Chia-Lin Chang

(Indiscernible) that’s on a base value. We don't extrapolate. So I really cannot comment specifically on products. So I’m sorry for that but I cannot comment on it. But as I said we never -- we continue to invest on all the excited product we have. We’ll capitalize on additional LTE opportunities into the second half of the year. I’ll pause here except before commenting further.

Arthur Hsieh - UBS

Well, how about this way, how would you rank yourself in terms of market position in this LTE products compared with some of the latecomers to the market? Is there something that you think that could help HTC to extend the overall market position into the second half?

Chia-Lin Chang

I think LTE depends on what you comment on it. Obviously, many high-ends -- well, before going to very specific is kind of is tricky to comment on those. But basically the LTE leadership, HTC had a very strong LTE leadership, either for the countries that have the fully LTE getting into a next to next phase of it. In fact, you can see the leadership by HTC and also for the countries that are going to introduce LTE. You can see that the LTE, HTC’s leadership in that. On both end of the segments here, I feel like HTC will have very good leadership based on the pipeline that we’re seeing.

Arthur Hsieh - UBS

Thank you. I appreciate that.

Chia-Lin Chang

Thank you, Arthur.

Operator

(Operator Instructions) The next question is from Robert Yen, Goldman Sachs. Go ahead, please.

Robert Yen - Goldman Sachs

Thank you for taking my question. Chia-Lin, I have two questions. First based on your guidance, I noticed that you basically guided the second quarter revenue very close to second quarter of last year's level. But your OpEx is actually more than 20% lower than last year level, which is actually a very impressive result. So can you help us understand what have you done to improve this operating expense efficiency on a year-on-year basis?

Chia-Lin Chang

I don’t have the second quarter lying with me from last year, if I can take a look at it, in terms of the overall OpEx in that. But I don’t believe the -- first of all, on R&D, I think we have sustained on a pretty similar basis in that. And I don’t know what G&A, G&A doesn’t actually relate to legal expense. But that actually doesn’t explain the whole 20% of it. So, I think what you are referring to is more primarily focused in the sales and marketing.

I do feel like we have more effective and efficient marketing and also the -- from the overall LTE above line, overall brand market and also associated with the sales. Hopefully, we feel like this is the part we have improved compared to same quarter last year. I’m looking at the chart that was provided me on the marketing. I think the bulk of it is actually come from the marketing, a little bit coming from the other parts of the things, yes. So that’s basically needed.

Robert Yen - Goldman Sachs

Okay. So can we assume going forward, HTC can maintain this operating efficiency level, like you can deliver similar revenue with a much less OpEx going forward?

Chia-Lin Chang

I can deliver similar revenue with much the, well, we are looking for is continue to improve the OpEx. I want to be -- I want to highlight and clarify, making sure it’s clear. We will continue to spend in sales and marketing, just how we do it more effectively, as our Chairman is saying, more effectively and more efficiently. So directly communicate to the end consumer who we know it through various means.

Robert Yen - Goldman Sachs

Thank you, Chia-Lin. And my second question is the disposal of your assets, because you discussed that you will dispose around NT$2 billion of your assets. Can you help us to understand what is the details of that?

Chia-Lin Chang

Dispose NT$2 billion of the assets? What’s that primarily, oh, there is -- there is couple of items, we just uploaded this and I apologies to people, some people may not be aware. We have decided to dispose our holdings in (indiscernible) Capital Partners, which is private equity fund founded by (indiscernible) former Goldman Sachs partner.

The whole reason is very simple. We think the -- we want to focus the caps and resource on things related to our industry and strategically. So we have decided to dispose it. As a result of disposal, we basically would take back the money we deploy in there and they put us small profit in there, but a little bit future upside share here, but basically you can see as a clean disposal in that regard. Is that something you mentioned it.

I think we have -- we also announced the capital injection, but the whole background with that without the (indiscernible) in that, basically it’s the sales of lease holding, the cash was offshore here. We are looking, no, it’s not the, it’s, I’m sorry, our -- the finance -- just correcting with that. We are looking forward to capitalize some of the entities, just moving around some the cash in there. I think that's the reason behind it.

The third thing, I think, we are submitting for shareholders approval on the restricted share quota. So that's the sort of three housekeeping items, I think, we just uploaded and I apologies some of may getting it late or haven’t got it.

Robert Yen - Goldman Sachs

Thank you very, Chia-Lin. I don’t have further questions.

Chia-Lin Chang

Thank you.

Operator

There is no question in line. I will pass the call back to CFO and President of Global Sales, Mr. Chia-Lin Chang for closing remarks. Mr. Chang, please proceed.

Chia-Lin Chang

Okay. Thank you everyone. Hopefully, we answered some of your questions, if you have further questions please contact our IR that will be helpful to you. Thank you.

Operator

Thank you. Ladies and gentlemen, thank you for your participation in HTC’s conference. There will be a webcast replay within an hour, please visit www.htc.com under the Investor section. You may now disconnect. Bye.

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