Taiwanese smartphone vendor HTC Corp (宏達電) still has a chance to regain its previously strong position in the increasingly competitive mobile phone market if it can tap into niche content and segments, according to industry analysts.
“HTC has some serious problems within the company,” said C.W. Chen, chief researcher of the Center of Knowledge-based Economy and Competitiveness at state-funded Industrial Technology Research Institute (ITRI, 工研院).
“Based on my knowledge, HTC’s internal innovation management lacks efficiency, and the company had failed to carry out some really good ideas or creative thoughts,” he said in a telephone interview recently.
HTC’s relatively weakened ability to innovate has also been evidenced by a closer tie between its partner Google Inc and its rival Samsung Electronics Co, as Samsung has replaced HTC as Google’s top partner in the Android camp to launch cutting-edge devices, Chen said.
Although the world’s first smartphone running on Google’s Android system was made by HTC in 2008, such strong partnerships appear to have faded during the past two years as Samsung have become more aggressive in supply chain integration and brand marketing, he said.
In the April-to-June period of this year, HTC’s shipments plunged 24.1 percent annually to 8.8 million units. The firm ranked fourth with a 5.7 percent share of the global market, said US.-based research firm International Data Corp (IDC).
The HTC figures were far below the 11.6 million units and the 10.7 percent market share it recorded in the second quarter of last year, IDC said.
Meanwhile, Samsung extended its position with record single-quarter shipments of 50.2 million units, or 32.6 percent of the market, while Apple shipped 26 million units to capture a 16.9 percent market share.
Given the intensified competition, Chen said he still believes HTC could make a turnaround because there is still a lot of room in the smartphone market for innovations, such as smart identification systems for voice, hand writing, face or finger prints.
Furthermore, he suggested HTC form partnerships with famous international companies to develop specially designed handsets for online learning and mobile shopping, in a bid to create a smooth user experience for its consumers.
“It’s not a time to reduce investments but to spend money more precisely and choose partners more wisely,” Chen added.
Jeff Pu (蒲得宇), an equity research analyst at Taipei-based Fubon Securities (富邦證券), said HTC has to stick to its merger and acquisition strategy to address its niche content and components amid fierce competition from Apple and Samsung.
Merging with other companies will be the fastest way for HTC to build its own sub-ecosystem in the mobile industry to combat Apple’s leadership in operating systems and Samsung’s edge in hardware manufacturing, he added.
However, several announcements in the past two years have cast doubts over HTC’s investment strategy and its ability to integrate new features into its hardware and software innovations.
In 2010 and last year, HTC made several investments to enhance its smartphone features and services, but it seems that these investments are struggling to bring any value to HTC or to survive as standalone companies.
In July this year, HTC decided to sell back half of a 51 percent stake it owned in US-based headphone maker Beats Electronics less than one year after the acquisition. The sale resulted in a loss of about US$4.88 million for HTC.
On Aug. 20, HTC said it would book an investment loss of US$40 million from its stake in cloud gaming provider OnLive Inc after investing in OnLive in February last year to attract more consumers by offering a wider range of services.
Once the most valuable company on Taiwan’s stock market, HTC has suffered a sharp decline in sales recently.
Founded in 1997, the company was initially a manufacturer of personal digital assistants. It later shifted to smartphone manufacturing and established its own brand in 2006, with its global market share reaching 16 percent at one point.
A string of setbacks experienced by the company since last year, however, has sent its market share and revenues plummeting.
The market value of HTC shares has evaporated by nearly NT$900 billion (US$30.06 billion), down from NT$1,300 per share in April last year to NT$258 at the close of trading on Aug. 31 this year.
The result can be attributed to a number of shortcomings in the company, which have been fully exposed amid the intensified competition in the global smartphone market.
Industry analysts said the plight of HTC reflects the problems faced by Taiwan’s high-tech industries as a whole — good at manufacturing, but weak in building up its patent portfolio, a collection of patents owned by an individual or a company. The benefits of having a strong patent portfolio include a market monopoly position for the portfolio holder, revenue from licensing patents and defense against rival portfolio holders.
Given HTC’s weak patent portfolio, the company has been sued numerous times by Apple, leading to its products being held up at the US border in May this year.
HTC CEO Peter Chou (周永明) told workers in an e-mail recently to improve internal communications and “kill bureaucracy” because HTC is facing increasing competition in the fast-changing mobile market.
Chou pointed out that HTC has “people meeting and talking all the time but without decisions, strategic direction or a sense of urgency.”
“Stay firm with the hero innovations and make them even bigger and deliver them,” the chief executive wrote in the e-mail, which was also sent to HTC chairwoman Cher Wang (王雪紅) and the board of directors.
Robert Yen (嚴柏宇), a Taipei-based analyst at Goldman Sachs, said HTC needs to address several challenges before it makes a turnaround, including improving marketing efforts and execution, as well as responding better to public relations crises.
“We believe HTC’s problems can be fixed, but require significant executive determination to do a big-scale overhaul, otherwise HTC might continue to be under enormous competitive pressure despite having seemingly decent products,” he wrote in a note recently.
For instance, HTC has not been able to deliver effective marketing messages, instead sending messages that were too complicated for the average consumer to comprehend, Yen said.
One example is the global promotion of HTC’s flagship model One X, featuring Tony Mac -— a professional photographer who is only famous among niche consumers. The commercial has Mac jumping off a plane to showcase One X’s great camera features with a very technical term “ImageSense.”
Yen believes the message of showing great camera features has less consumer appeal compared with Samsung’s much-more-straightforward marketing message -— using David Beckham as Samsung’s global spokesman for its flagship smartphone.
Moreover, HTC’s internal quality control and public relations problems following several product quality cases have caused significant harm to its brand equity, he said.
Within the first few weeks of the product hitting the market, there were enormous consumer complaints about product quality, including a display yellow spot, extremely short battery life, hardware overheating and software instability.
Although it is unusual for sophisticated hardware such as smartphones to be completely bug-free, the way HTC dealt with this product quality crisis was surprising, Yen said.
According to the local media, HTC claimed that the One X handsets displaying quality issues were internal testing models and should not have been released to the market.
“Such mis-execution could lead to irreparable brand equity damage and we have been surprised by HTC’s response to consumers’ complaints since early this year,” Yen said.
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