HTC visionary Chou set for biggest challenge yet

HEART AND SOUL::While acknowledging his central role in its early success, some former executives have criticized the HTC boss’ long-term planning and management style

Reuters, SINGAPORE and TAIPEI

Thu, Aug 22, 2013 - Page 14

Now in his 10th year as HTC Corp (宏達電) chief executive officer, Peter Chou (周永明) is lauded as the architect of the Taiwanese firm’s award-winning smartphones. Yet, after the company’s fortunes nose-dived, some insiders say he is now an obstacle to any revival.

Rocked by internal feuding and executive exits, and positioned at the high end of a smartphone market that is close to saturation, HTC has seen its market share slump to below 5 percent from about a quarter five years ago; its stock price is at eight-year lows, and it has warned it could make a first operating loss this quarter.

Reuters interviewed a dozen former and current HTC executives who said Chou’s abrasive management style and weak strategic vision have played their part in the company’s decline, which has coincided with the success of Apple Inc’s iPhone and Samsung Electronics Co’s Galaxy phones.

Chou has said publicly he has no intention to stand down, and executives — none of whom wanted to be named because of the sensitive nature of the issue — said HTC has no clear internal successor.

“Part of the weakness is there is no obvious successor, and that’s not been good for morale,” one said.

Chou declined to be interviewed for this article, but in response to Reuters queries, the company said: “HTC’s board and broad employee base remain committed to Peter Chou’s leadership. The [flagship] HTC One product family — which has been met with accolades by media and consumers alike — was a result of Peter’s vision and leadership, and speaks for itself.”

OBSESSIVE EYE

Born in Myanmar but educated as an electrical engineer in Taiwan, Chou joined HTC from Digital Equipment Corp (DEC) in 1997.

Colleagues describe him as a perfectionist with an obsessive eye for materials and hardware design.

Staff would deliver trays of prototype phones for him to inspect and pore over, spinning them to check for balance and running his fingers across the beveled edges and joints. Phones would pile up on his desk, sometimes spilling onto the floor.

That attention to detail and Chou’s willingness to make decisions on the fly helped build a culture within HTC of moving quickly to address market demands.

For example, at an offsite meeting two years ago the HTC team realized it needed another device for its portfolio. Chou quickly drew some sketches on a whiteboard, recalled one of those present, and soon had the outlines of a device, its price point, and a launch date — just three months away.

Most manufacturers would need up to 18 months for a similar project, yet the Sensation XL appeared on schedule, and to rave reviews.

“Having the ability to just tear up a plan and say, OK, this is the new thing and we’re going to get it done fast. That’s Peter,” another former senior foreign executive said.

This shoot-from-the-hip style served HTC well when the market was growing fast. Shortening the time to market meant HTC could alter plans at the last minute to take advantage of new or cheaper parts.

However, as the market matured, making it harder for handset makers to differentiate their products, the approach has left HTC vulnerable. Locking in the supply of more advanced components and materials to make products stand out requires more foresight and planning than HTC currently allows, former executives say.

“The weak point is they don’t really have a long-term strategy,” one said. “It used to be a strength, and now is becoming a weak point as they don’t have a clear direction going forward.”

HTC’s second-quarter net profit was well below forecasts even after resolving component shortages that hit its HTC One model, and the company has said revenue for the current quarter could fall by as much as 30 percent from the previous quarter.

HTC shares currently trade at around a tenth of their 2011 peak.

MANAGEMENT STYLE

Just three years ago, HTC was shipping 25 million smartphones a year and Chou led a huge expansion, bringing in foreign executives from Sony Ericsson, Apple, Motorola and Microsoft Corp as he sought to take on Apple by doubling HTC’s shipments.

HTC was named Device Manufacturer of the Year at the Mobile World Congress in February 2011 and its market value topped that of rivals Research In Motion Ltd, now BlackBerry Ltd, and Nokia Oyj. Chou ordered champagne to celebrate.

However, as Apple and Samsung reigned supreme, HTC’s annual shipments never reached that 50 million level, and by the end of last year HTC had dropped to 10th among global smartphone makers.

The HTC One, and earlier so-called “hero” handsets from HTC, have won wide praise. The problem has been selling them.

Executives say HTC’s failure to hit sales targets was at least partly down to Chou’s management style.

After hiring a slew of foreign executives, he fell short on promises to senior staff to foster a more open culture and cede sufficient authority. He openly berated managers and overrode their decisions, often with little discussion.

Such an atmosphere, executives said, damaged morale and left managers uncertain of their roles.

Chou kept his sales, product, marketing and design executives separate and, in some cases, created parallel teams doing the same thing. He did not hold meetings of executives of the different departments to iron out problems even as HTC’s performance wilted.

“There’s a culture in HTC not to discuss numbers at senior management meetings,” one former executive said. “Those discussions tend to become hard or ugly, but if you don’t solve it, it becomes bigger.”

OLD GUARD

Chou’s difficulty in developing a durable global brand of handsets, and building an ecosystem of apps and services around it, raise questions about how HTC can recover under his leadership at a time when high-end smartphone sales growth is slowing.

“With intensifying competition from other top-tier players and the entrance of lower-tier players, we think a long-term margin downtrend is inevitable,” SinoPac Securities Co (永豐金證券) wrote in a recent client note.

Many of the foreign hires have now quit, and HTC’s old guard has re-established charge, running nearly all operations except design from Taipei. That, say those both inside and outside the company, is a mixed blessing.

While leadership tensions may have eased, some warn that concentrating global marketing in Taiwan will create a one-size-fits-all, local approach that will not help HTC grow globally.

“What works in Taiwan is different from other markets,” one of the former executives said.

Chief marketing officer Benjamin Ho (何永生) defended the move, saying in a recent interview with Reuters that it made sense to centralize key functions, but that HTC was “not forgetting that we know we’re an international brand.”

Even his fiercest critics agree Chou remains the heart of the company and say it is hard to imagine HTC coming up with great devices without him.

As it seeks to turn around its fortunes, HTC has launched cheaper phones in China, and brought out a smaller, cheaper version of its flagship phone, the One Mini. It is trying to revive its US business by working more closely with operators and forming a new operations team.

HTC has also signed up Iron Man star Robert Downey Jr, whose own turnaround story — from jail and drug rehabilitation over a decade ago — is an “inspiration,” Ho says.

As part of HTC’s about US$1 billion annual marketing spend, the first advertisements featuring Downey appeared last week.