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HTC Continues to Slide

  • One X is the best Android out there, but sales are slow
  • Windows Phone 8X missing key features
  • Where to next for HTC?
Written by Adam Wajnberg
09/10/2012

HTC has enjoyed significant success with its One line, with the One X frequently lauded as the finest Android smartphone on the market, surpassing even the Samsung Galaxy S3. The combination of durability, sleek design and monster specs have restored HTC’s reputation as a major smartphone manufacturer, able to stand toe-to-toe with Apple and Samsung.

                          htc one x

Alas, this burnished reputation has failed to translate to sales. With a drastic reduction in the range of handsets on offer to better focus on the One line, HTC’s earnings tumbled 79% from last quarter, to $133 million net profit. Though still profitable, the firms flagging fortunes can’t be ignored. The share price dropped nearly 1% on the news, though further falls can be expected.

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What’s wrong with HTC?

                             htc

The main problem with HTC is a lack of diversification. It makes tablets and smartphones – and nothing else. Unlike Samsung, which is one of the world’s largest conglomerates, And Apple, which seems able to print money at will, HTC has to rely solely on the strength of its low-margin hardware business.

Without a cash cow like the App Store or iTunes music store, HTC needs hit phones to squeak by. Unfortunately, they also need the competition to be bad, and right now the competition is very, very good.

Research in Motion (RIM), the beleaguered makers of the BlackBerry, remain profitable on the back of relationships made with IT departments a long time ago, becoming the standard issue handset for the business class. This is fading now, with Bring-Your-Own-Device (BYOD) schemes becoming popular at many firms. But the remaining market and associated services continue to keep RIMs head above water, even with their handsets gathering dust in stores.

HTC is one of the few pure smartphone makers, and can claim to be the first. Their original Windows Mobile handsets from the early 90’s packed so many bells and whistles that they seemed too good to be true, and HTC was rapidly becoming that rare thing – a Chinese firm that was becoming well regarded in its own right, and not just a cheap and cheerful manufacturer for the products of older, more established firms.

But now everyone is in the superphone game, and doing it better. Or to be more accurate, doing it in a way that attracts customers. HTC is still bringing the goods, but they’re failing to get the message across.

What’s Next?

HTC may have made a mis-step with their next big release, the Windows Phone 8X. Despite carrying some impressive internal specifications, they’ve revealed a 16GB version only, with no expandable memory – on a phone with a big bright screen that seems perfect for watching Hi-Def video on the go. They’ve also failed to differentiate it significantly from the hotly anticipated Nokia Lumia 920, a similar Great White Hope from a battered former champion with a good reputation and poor sales. Both handsets will boast plenty of goodies wrapped in fetching multi-colored cases, which might lead to people thinking  that since the two handsets are so similar, they may as well go with either the better-known brand (Nokia), or the better price tag. And a price war won’t help drag HTC out of its fiscal doldrums.

Are they done?

They shouldn’t be. Sooner or later people will get sick of Samsung. Apple has proven that even excellent hardware and services can lose their sheen after time, and Samsung’s hardware is just shy of Apple’s quality. But they’re also shy of HTC’s and Nokia’s quality.

Sony, LG and Motorola are in the same boat as HTC. They’re all making good handsets, but failing to translate that engineering prowess into sales. In a situation like this, consolidation is more common than outright collapse.

Motorola’s mobile phone division has already been bought out by Google, in a purchase that has failed to ignite any sparks. Nokia is married to Microsoft, in a partnership that continues to shift to Microsoft’s advantage.

Sony and LG are parts of much larger conglomerates. LG in particular isn’t going anywhere – most off-brand TVs made today are powered by LG screens, and the rest of their business is pretty sound. Sony on the other hand could be in real danger, and if things don’t turn around for them, they’d probably jettison their flailing mobile business first.

Who would buy HTC?

HTC’s fortunes could turn around next quarter, if the Nexus 7 tablet that they’ve just built for Google sells well over Christmas. But it will be up against a slew of excellent tablets from Amazon, as well as the Surface range of Windows 8 tablets that Microsoft will be building themselves. And any day now, Apple is expected to announce a 7 inch iPad Mini.

A couple more bad quarters, and the pressure for HTC to court a merger will be on. Google would be a good fit, but if Google has Motorola and HTC in their stable, regulators will be unimpressed.

Microsoft seem to be moving away from laptop manufacturers with whom they’ve traditionally had a cozy relationship, especially Acer and Asus. Acquiring HTC would give them a bunch of hardware know-how…but they’re more likely to poach Nokia.

So it seems for now we’re just going to have to wait and see. This Christmas season will prove an important testing ground for all of these struggling firms.

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