HTC Needs a Change of Strategy

November 23, 2011
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I don’t think HTC has had a very clear strategy of where they are going for the past 6-12 months. They seem more focused on incremental improvements, releasing more products into the market and using the same type of processor. This choice of strategy has started reflecting in their revenues, and it seems next quarter’s growth will be flat at best:

“Fourth-quarter revenue will be approximately the same as a year earlier, when it was NT$104 billion ($3.4 billion), the Taoyuan, Taiwan-based company said in an exchange statement today. Last month, HTC forecast sales to range between NT$125 billion and NT$135 billion. Sales will slow quarter-on-quarter for the first time in almost two years.

A $300 million purchase of S3 Graphics Co. also will be reevaluated after the target company lost a patent-infringement case against the iPhone maker earlier this week, HTC said today.”

Buying S3 graphics is a mistake, too, unless they really want to make their own ARM CPU and their custom GPU later on. Paying another $300 million for a share in Beats seems like a mistake as well, or maybe it was a good idea, but they overpaid for it by $100-$200 million. It’s like they think they have too much cash and nothing to do with it.

HTC’s problem isn’t that they are “just another Android manufacturer”. They are a WP7 manufacturer, too, and one that has pushed WP7 pretty hard, but that hasn’t seemed to help them one bit so far. If anything, it will compound the problem, because WP7 phones look even more alike from both a hardware point of view and a software one.

The problem is that they keep churning out more or less the same looking phone every 2 weeks, and their phones are becoming unrecognizable from each other. They don’t really have a brand-phone. This strategy is a pretty poor one, and it doesn’t matter if they use Android or WP7. The end result is going to be the same – a bad one.

 from Gigaom is suggesting HTC should build lower-end phones, too. HTC has actually been trying to be the low-end/mid-end for a while now, at least in Europe, and some in US, too, like the HTC Aria. But from what I’ve noticed their phones there are just not worth it. They are usually 50-100 euro more expensive than the competition with the same specs and a slightly better package.

This could be happening for 2 reasons. HTC wants to maintain pretty high profits, and also because they are licensing a lot of technologies. And by that I don’t just mean patent licenses like the ones they are paying to Microsoft, but real technology licenses, too. Unlike Samsung, HTC don’t really make any component themselves or service. They are just licensing from others, and that makes them more like Dell from this point of view, although, at least for now, with a much better reputation and higher quality builds. But I’ve argued before that this is not a path smartphone manufacturers should be taking, and that’s exactly where HTC is heading.

HTC is also saying things will start to look up for them in 2012. So maybe there is a change of strategy after all. I know they are planning on using other chips as well, like Tegra 3, and they will also use the new gen Krait chips from Qualcomm, so those should give them a nice boost in sales for their flagship phones.

They will also need to work more on the branding part of their phones, and stop diluting the phone brands so much by releasing a similar slightly better version just a month later. People will get behind a certain phone with a strong identity, but they won’t if they release several others that are more or less the same and with forgettable names.

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