For a while, HTC was the hot brand in the world of Android. Sales peaked in the third quarter of 2011 and they have fallen steadily since then. According to the Financial Times, they are projected to drop further, with expectations that HTC will earn just over half that 2011 high in the third quarter (this quarter) of 2012. In the last few months, we’ve seen the value of HTC drop dramatically and some questionable investments have cost them big. Why is HTC having such a tough time?
HTC’s promising rise to power
HTC was founded in 1997, and for a decade it slowly built a reputation as a great phone maker, concentrating mostly on Windows Mobile devices. It wasn’t until 2008 that the Taiwanese company sparked its ascent to become one of the top smartphone manufacturers in the world with the first Android smartphone, the HTC Dream (better known to many as the T-Mobile G1). A string of hits followed: the HTC Hero, the HTC Desire, and the first 4G-capable phone, the HTC Evo 4G.
In 2011, HTC surpassed Nokia in value (not sales) to become the third largest smartphone manufacturer in the world, behind Apple and Samsung. At that time, the brand was well-known and the company had grown cash rich. HTC had built a reputation for great build quality and software skills, with major plaudits all around for the HTC Sense overlay, which enhanced Android’s usability. Its biggest problem seemed to be what to do with all the cash it was making.
That third quarter of 2011 high for HTC soon gave way to falling revenue and a drop in the smartphone charts which has continued for a year now. It has released a number of high-end handsets since, but seems unable to turn its fortunes around. What happened?
Spending money in all the wrong places
The investments that HTC made before its decline all looked pretty exciting at the time. The Beats Audio partnership cost it $300 million, and bought HTC a 51 percent share in the company. Assimilating Beats into the new handset line-up turned out to be tougher than expected, however. The reviews of devices like the HTC Rezound were disappointing. HTC reduced its majority shareholding in Beats to 25 percent earlier this year and made a slight loss on the deal.
Another investment that didn’t seem to pay off for HTC was the $300 million it spent acquiring S3 Graphics. The idea was to shore up its patent portfolio to help in the courtroom against Apple, but the International Trade Commission ruled in Apple’s favor. So what did HTC get out of the deal? Not much, by the looks of it.
Just this week, HTC announced a $40 million loss to the Taiwan Stock Exchange following the OnLive restructuring deal.
Still, none of this has stopped HTC from investing elsewhere. This week Reuters reported a $35.4 million investment in Magnet Systems, a Silicon Valley startup focused on cloud-based business services. This could be linked in to HTC’s cloud plans.
A lack of marketing muscle
If we cast an eye back and look at HTC’s high point — when it claimed the third spot in the 2011 smartphone manufacturer charts – we can also see it was a distant third to Apple and Samsung. Many analysts have suggested that HTC’s real failing has been an inability to compete with Samsung’s marketing spend. The brand HTC built is a premium one and as support for the iPhone and Samsung Galaxy phones spread to more and more carriers, HTC hasn’t been able to attract enough attention. It’s latest attempt was its flagship HTC One X, but the device failed to catch on.
The battle between the Galaxy S3 and the HTC One X is by no means clear cut, but Samsung has definitely won the sales battle. With the iPhone 5 on the horizon, HTC is now looking at price cuts as a way to try and compete. The company must be perplexed about the poor performance because the HTC line-up is still very good. Perhaps it simply can’t compete. Apple and Samsung are huge brands in multiple tech markets and they spend a lot more money on marketing than HTC can afford to match.
The tides have turned
It does seem as though HTC is now struggling because of the very things that made it successful. Consumers don’t seem to be prioritizing build quality, as evidenced by the success of the Samsung Galaxy S3 over the HTC One X.
HTC’s success at the lower end of the market with devices like the Wildfire has been swept away in a tidal wave of Samsung releases and budget priced phones from companies like Huawei. Diversions, like the female-oriented HTC Rhyme, look a bit embarrassing now, and were probably costly in terms of brand image.
HTC’s Sense overlay hasn’t aged well either. While it used to offer a genuine boost to stock Android, the platform has improved a lot in the last few iterations and Sense seems to be offering less. The issue of delayed upgrades and fragmentation, and some questionable tweaks to new versions, has also dented the adulation that HTC Sense used to enjoy.
We can’t ignore the fact that HTC’s innovation has faltered; its designs have missed the mark on more than one occasion; and its marketing efforts have not captured the public imagination. The company simply doesn’t seem to have its finger on the pulse of the smartphone market anymore.
Turn the ship around
HTC may be down but it certainly isn’t out. It will continue to release premium Android phones and we can expect some Windows Phone 8 releases to hit the stores in October.
If rumors about deep price cuts are true, HTC could pick up a lot of new customers. A heavily discounted HTC smartphone would be a seriously tempting prospect. If it can raise its profile a bit and remind people that HTC smartphones are really good, then perhaps it can carve out more than a “quietly brilliant” niche in the smartphone market and grow into a stylish alternative to the current behemoths, Apple and Samsung.
The road back is not an easy one. How do you rate HTC’s chances?
I’ve never really seen HTC as a force in the smartphone market, I’ve always disliked their customized version of Android
IF they actually fixed the One X multitasking issue (labeled “feature” by HTC) I will buy one… the multitasking issue is the only reason I am not buying one right now… oh, that, and they seemingly won’t release the US spec dock (probably because the sales are too low).
Having been in the industry for a while, I would say the following things about HTC. They have several issues, but I don’t necessarily agree with everything said here.
1. Don’t listen to those hardcore geekheads:
If I hear another comments about if HTC would only release bootloaders, they would double their sales, I’m going to blow my top. Bootloaders, Not having stock Android, not being the first to update to Jellybean, even the removeable battery issue are issues that the common man who knows little about about and cares about it even less. These statements are often self-serving and not based on wide market research.
2. However, they do make a few good points:
But these tech-geeks don’t live in a bubble, they have said things that make sense to ordinary folks like me. A consumer should be confident that they have the tools they need. They need a phone with a decent battery, they need a phone with enough memory (including removeable memory). They need a phone that looks nice, is thin but feels durable. These are the basics. And with Sense, I think it has to continue to provide value, such as make things easier, make things quicker and not bog down the device.
3. Advertising should be about the Why, not the What.
This come from my favorite lecturer about leadership, Simon Sinek (catch him on YouTube). Apple markets the Why (their beliefs, their values) and uses the What (features) to confirm it. Companies like Samsung market the What (a wiz bang feature like S-Beam or S-Amoled 2) and needed 2X the marketing budget of Apple to drive business. HTC, you don’t have that budget, but with the YOU campaign, you let people know what you believed in and I think alot of people BELIEVED in YOU. Now, you market a camera and Beats Audio and your ads have removed all the WHY and become a WHAT piece. Go back to your roots. I have met your product and marketing people, they are cool, they are connected to urban culture, they are NOT THE SUITS that Samsung are. However, you let SUITS run your company (And I’m not talking about HQ execs like Peter Chou). You don’t need Dr. Dre or Lebron James, you need a million people who believe in the product and the company, letting their friends and family know what you are and what you can be. HBE talks about the product design lead leaving being a sad day. Another (less known) sad day was when the Brand Director (who spearheaded the YOU campaign) left because he didn’t believe in the top managment anymore.
The Product:
The product is always at the center. Like HBE says, the reason you are ahead is because you took risks and that’s why fans loved you. You created the first Windows Smartphone, you created the first 3G Smartphone, you created the first Android device, the first device with a 4.3 inch screen, the first 4G device. You are a leader! But now others are catching up and others are even surpassing. Even though One X was the first quad-core device in the world, coming out MONTHS before SG3, you aren’t getting credit for it. Samsung is now the sales leader, even though they are a fast follower. You need a design that will wow and you need it fast.
These are some of the issues you face. Personally, knowing your top management for being in the industry for so long, many of them need to be shown the door. They have become corporate, basking in their success of Q3 2011, and now show their weaknesses when times are tough. You need new talent, people not from the industry, especially in marketing. That is what took LG from a “they make phones?” to #1 in the marketplace for a long time. They had great marketing folks in North America that came from outside the industry. HTC needs to think outside the box to survive.
Geeks are 1% of the market, but they guide the decisions of 10% of the market. That’s because every geek knows 10 people who ask them first what phone to get. These people then tell another 0 to 5 people what they think they know is the best choice. Bottom line is that if HTC designed their version of Android OS to be Nexus-like and always get the first upgrades, that alone would push their fortunes up huge, over the course of 12 months. I think they need to simplify to simply making the best Androids with the best build quality and the least issues over upgrades and bugs and bloatware, of any other maker.
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HTC is a sad story. Their troubles began when the head of product design retired from the company in early 2011. And you are dead right about the device line-up in the second half of 2011 like the Rhyme, Rezound and their so-called Facebook phone (can’t remember the name). They were weak ideas. HTC also has continually struggled to define what their brand stands for, opting instead to launch device after device that after a few month dissolves into the ether without accruing any equity to the mother brand. What’s sad is that HTC’s product quality is amazing. But some of their marketing decisions have been terrible.
I wish you would’ve spent more time discussing the marketing struggles of HTC. As you mentioned, HTC hasn’t had a widely recognizable phone since the Evo. Their new line of phones (the one series) had the potential to give HTC the same level of brand recognition as Samsung has had with the Galaxy line, but they faltered in their marketing of the phones features. At&t only focused on beats sound integration (which comes standard on most HTC phones now anyway) and can hardly be considered as a selling point. T-Mobile only advertised the One S’ ability to stream music from the cloud using Google’s music app that’s available on all android phones. And sprint simply touts the ability to take pics rapidly and while recording video (at&t recently started to advertise this as well). To the average person, the same person that has never even heard of digital trends, these singular features don’t make the one series seem any different from all the other wanna be iPhones. Let’s not forget that HTC didn’t even make each version available on all carriers and excluded Verizon (the nation’s largest provider) completely. Plus HTC let Sprint completely change the look and name of the One X so many people think its just an even bigger Evo. My father has the original evo, and after watching the sprint ad for the new late version, he thought they were advertising his same phone. How can you attract new customers when your current ones can’t even tell the difference?
Thanks for posting, great comment. I think you’re right the marketing was all wrong. It’s always dangerous to advertise a phone for a single feature because people seem to think that’s all it can do. Carrier specific versions definitely muddy the waters too.
I agree with you. The fact is that HTC beat out Samsung last year even though they had too many products out there. The advertising up to Q3 was their YOU campaign, a message about WHY you should believe in HTC, not WHAT features my phones have.
It was the last creative from the HTC Brand Director who left in Q3, 2011. After that (according to HTC insiders), marketing went downhill when they dumped the YOU campaign right afterwards. I saw the Rezound advertising, the Radar 4G advertising and Thunderbolt advertising (which was not done by the Brand Director, but the new folks). They were forgettable.
HTC needs to stop releasing so many varieties of phones in which some are stellar and some are garbage because the garbage ones muddy the water. Furthermore, having so many varieties of devices reduces HTC’s ability to release updates and upgrades quickly for their devices. I have the Evo 3D, and it took HTC more about a year after release of Ice Cream Sandwich to issue the upgrade. Unfortunately, the upgrade is full of bugs such as the face-recognition-to-unlock feature mysteriously starts using the back camera instead of the front one. And HTC is not releasing updates with bug fixes, so I’m disappointed and will likely go with the next iPhone.
And why is it that the Evo 4G LTE is not a world phone???? What if the user wants to go on a trip, and needs to put another SIM card in for overseas use?
HTC does make many “firsts” but their products have bugs, and they don’t release updates for their devices year after year like Apple does.
Worse of all, HTC does not give its current product users an easy way to upgrade to their newer products. That is, unlike the iphone in which you can back up all your apps and their settings and all your phones system settings to your computer for quick load to the newer iPhone, no such feature exists on Android phones including HTC phones. The only way to do the back up and transfer of all that I mentioned, you have to go through the pain of rooting the phone and then use a program called Titanium Backup available in Google Play to do the back up and transfer to a new device.
So HTC should not be surprised about why iPhone is so popular and their is not gaining more market share.
I hope HTC can bounce back. I love their devices.
HTC phones are much higher quality than their Samsung counterparts, and I agree that they’re not spending their resources well. It’d be cool to see them bounce back, because Samsung needs strong competition in the Android world. They do have a weird branding scheme that is often confusing. Sadly true that their slogan is “Quietly brilliant”.
I’m sure HTC will make some gains with the high profiled launch of the Facebook Phone. Even then, I’m not hopeful about HTC (and Nokia) as Huawei slowly begins to makes its strides in the American market, and Samsung dominates the market for high-end smartphones. Of course then there’s the iPhone…