HTC seeks to remain strong brand for smartphones

Oct 26, 2012, 9:00 AM EDT
AP Photo/Chiang Ying-ying

TAIPEI, Taiwan (AP) — Taiwan's HTC Corp. enjoyed three golden years as the first company to make smartphones based on Google's Android software. Now, it is struggling to halt a slide in sales and keep its status as a global brand in a market increasingly divided between Apple Inc. and Samsung Electronics Co.

HTC phones were launched in 2006 and the Taiwanese company surged into the fast lane two years later with its Android smartphones that appealed to consumers because of competitive prices on the free operating system and their strong design.

But its sales faltered from the second half of 2011, partly because its limited financial resources put it at a strong disadvantage to aggressive marketing drives by Samsung and Apple. And unlike its American competitor, it lacked a distinctive flagship phone that captured the hearts of consumers as a must-have product. Instead it produced many phones, trying to cater to a wide range of consumers.

HTC on Friday reported a 79 percent drop in third quarter profit to 3.9 billion New Taiwan dollars ($99 million) on revenue of NT$70 billion. It was HTC's fourth consecutive fall in quarterly profit.

Worse may be to come. It predicted revenue will drop to NT$60 billion in the fourth quarter despite traditional pre-Christmas buying and its introduction of two new models running on Microsoft's Windows 8 software.

"HTC is undergoing a difficult period of trial and error," said Stephen Su, market analyst at Taiwan's Industrial Technology Research Institute.

"Its technology is good and its design capability is Taiwan's best," he said. "But like other Taiwanese makers, HTC falls behind in the area of practical application."

Su said HTC's unfamiliarity with Western markets puts it at a disadvantage in developing products for Western consumers — in contrast to Apple, which always seems to be one step ahead of consumer sentiment, not only in the West, but all around the world.

HTC was founded in 1997 as a contract electronics manufacturer. Under its chief executive Peter Chou, the company switched to making smartphones in 2006, collaborating with U.S. carriers in marketing efforts.

HTC's performance reached its peak in the April-June period of 2011, when it shipped 12 million phones and its revenue totaled NT$125 billion.

The company's salvation may lie in pursuing alliances with tablet computer and TV makers so HTC phones can share entertainment and other programs with multiple devices just like iPhones do. The Taiwan maker has not publically addressed the question of a prospective alliance.

China's vast market could also offer HTC very good growth prospects. Economic ties and trade between China and Taiwan, which Beijing considers a breakaway province, have blossomed in recent years, providing new avenues of growth for many Taiwanese companies.

"The greater China market may be HTC's opportunity if they can make phones with features desired by the Chinese and possibly extend that experience to design products for Western consumers," said Su.

In China's fast growing smartphone market, HTC is expected to sell 6 million phones this year, ranking 10th, according to Taiwan's Topology Research Institute.

That would put it well behind Samsung's projected 32 million, Apple's 15 million and even Nokia's 11 million, the organization said. Total Chinese smartphone sales in 2013 will likely hit 256 million, up 36 percent on 2012, it said.

Dennis Chan, an analyst with Taiwan's Yuanta Core Pacific Securities, said that despite its current troubles, HTC can bounce back if it can come up with a new phone that resonates with consumers.

"The company is now rolling out only a few models instead of multiple phones to meet every taste as it used to," Chan said. "It will remain a recognized brand for high- and middle-end phones. But it needs to launch a flagship model with distinctive features to really turn things around."