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After a swift rise from anonymity to omnipresence, the Taiwanese mobile-phone
firm has stumbled. Time to get back on track
Apr 7th 2012 | TAOYUAN | from the print edition
IDEAS so simple , reads a cartoon on an elevator door, that they feel like
the completion of a thought, continues its twin. Similar doodles adorn the
walls of HTC s headquarters in Taoyuan, near Taipei, and business cards carried
by the smartphone-maker s staff. John Wang, the chief marketing officer, lays
out a set of four: concentric circles with a smiley in the middle, denoting a
focus on the customer; an arrow from A to B, for simplicity; a magnet, for
hidden power ; and a parcel, for pleasant surprises .
Meaning what, in practice? Mr Wang shows off the camera in HTC s new range of
smartphones, the One series, which goes on sale this month. It is ready for use
super-fast, focuses and shoots in a fifth of a second, takes photos in rapid
succession and does away with cumbersome switching between stills and video:
you can take snaps while filming or replaying. The engineering is hard, but
hidden. The camera is easy to use. It is a pleasant surprise.
Last year, however, HTC produced an unpleasant one: sales and profits plummeted
in the fourth quarter (see chart). In the first two months of 2012 revenue was
a staggering 45% down on last year. In February Winston Yung, the chief
financial officer, admitted that HTC had dropped the ball . Analysts mused
that last year s products were not its best: perhaps fast growth caused a loss
of concentration. And the competition, from Apple s iPhone 4S and Samsung s
Galaxy S2, was ferocious.
Mobile-phone brands can flower and fade quickly. On March 29th Research In
Motion, the Canadian maker of the BlackBerry, the latest to wilt, announced a
quarterly loss, the departure of senior executives and a comprehensive review
.
No firm has bloomed as suddenly as HTC. Until 2006, when it started selling
phones under its own name, it had no brand to speak of. Yet now only Apple and
Samsung sell more high-end smartphones (costing $300 or more). In America it
sold more smartphones than anybody else in the third quarter of 2011, according
to Canalys, a research firm.
This month two things will happen that HTC hopes will revive it. It will start
selling a new crop of phones and step up its efforts in China, a market it
entered only in July 2010. IDC, a research firm, says China will become the
world s biggest market for smartphones this year. Others reckon it already is.
Founded in 1997, HTC began as one of many Taiwanese firms that design and make
things that are sold under others brands in its case, brands belonging to
mobile-phone operators and computer-makers. In 2000 it produced the iPAQ, a
personal digital assistant, for Compaq, a firm bought by Hewlett-Packard in
2002. HTC s original name was High Tech Computer, which is as anonymous as it
gets.
It won a reputation for excellent engineering. But it wanted more, and began to
invest more in innovation before eventually creating its own brand. It set up a
unit called MAGIC Labs, which was charged with coming up with lots of ideas,
even if most were quickly discarded. (Mr Wang was its chief innovation wizard
. He still has a few of those business cards, too.) From this came, notably,
the HTC Touch, a touch-screen device that appeared in 2007, at about the same
time as Apple s first iPhone. Mr Wang admits to feeling terrible when the
iPhone appeared, but he says he soon felt at ease . Because HTC had a very
weak brand back then , take-up of the new phones would have been slower had
Apple not made touch-screens cool.
Spectacular growth came hand in hand with that of Android, Google s mobile
operating system. HTC latched on to this early, making the first Android
smartphones, despite an earlier tie-up with Microsoft. Like everyone else, it
has caught shrapnel in the patent wars. In December America s International
Trade Commission ruled that some HTC devices had infringed an Apple patent and
should be banned from America from April 19th. HTC says a redesign will deal
with the objection.
Patent wars may not have halted it, but it has stumbled nonetheless. Pierre
Ferragu of Sanford C. Bernstein, an investment bank, links its decline to the
tyranny of the flagship : the tendency for top-of-the-range phones to scoop a
disproportionate share of the market. Mr Ferragu reckons that in the fourth
quarter of 2011 30% of volume, 52% of sales and 87% of operating profits were
accounted for by iPhones and Samsung s Galaxy S2 alone. He expects these ratios
to fall and thinks that HTC is best placed to gain.
Mr Yung promised that growth would resume when new products appeared. There are
reasons to be cheerful. The One phones were well received when HTC showed them
off at Mobile World Congress, an industry jamboree, in Barcelona in February.
Deals with 140 operators and distributors around the world should help get them
into consumers hands.
In China, explains Ray Yam, the head of HTC s business there, the company
started later than in richer parts of the word largely because the country s
mobile infrastructure was iffy. These days 10-15% of users have 3G, a figure
expected to rise rapidly; and more people have access to Wi-Fi, in public
places if not at home. HTC has taken about 10% of the market for smartphones
costing more than 2,000 yuan (about $300). It is time for a further push.
So HTC is launching its first national marketing campaign. It will also open
many more shops in shops booths run by manufacturers in electronics stores in
which they jostle for custom. HTC has 2,300 so far; Mr Yam expects there to be
4,000 by the end of the year and 6,000-7,000 eventually. (He reckons Apple has
3,500 and that Nokia and Samsung have 9,000 each.) HTC is also introducing
phones tailored for the Chinese market. Last month the Triumph, the first phone
in China with the newest version of Windows, went on sale. Also coming is the
Desire, which has the latest incarnation of Android and can switch between
operators with incompatible standards.
Here s To China
This year is a very important one for HTC, says Yan Siqing, chief operating
officer of China Telling Telecom, which distributes around 15% of the country s
mobile phones. Mr Yan, whose firm works mainly with global brands, including
HTC, says HTC grew rapidly in China last year, despite its late start, because
it provided a good user experience . People know the brand and like the
phones. Its main competitor in [China] is Samsung. Apple is higher up and for
now there s no way to compete with them. Nokia is another strong brand but its
Windows phone is still new. That gives HTC time for growth .
HTC has a good chance of bouncing back this year. Ben Wood of CCS Insight, a
research firm, thinks it has pulled it back with these new products , but he
adds that the firm is only as good as its latest device. The market changes
fast.
That means HTC will have to keep turning out hits. Others have seen it rise
from anonymity to omnipresence and want to follow: Huawei and ZTE, two Chinese
hopefuls, are far behind but hungry. HTC cannot yet rely on other sources of
income: its tablet, the Flyer, has not yet flown. Apple, Samsung and the rest
have alternative means of support. They also have many more billions to throw
at marketing. HTC prefers to let its products do the talking. It seems
confident that people will listen.
from the print edition | Business