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HTC's profits drop in half in the second quarter, Customs ban and weak sales blamed

It's getting harder to compete in the Android space
July 6, 2012

HTC warned a few weeks ago that its Q2 earnings will not be that great, and it looks like they were right. HTC’s profit dropped by 57.8% in the last quarter, compared to a year ago. This means that more than half of their profit has evaporated, leaving the Taiwanese with only $250 million in profit for this quarter. In the meantime, Samsung achieved an amazing $5.9 billion in profit for their phone division, thanks mainly to the launch of the Galaxy S3, which increased their profits by 79%.

So why was Samsung so successful and why was HTC’s evolution so lackluster in the past quarter? HTC blames customs issues, referring to the injunction that the ITC imposed on the imports of the HTC One X. But I am not convinced that the week-long blockade of the One X and EVO 4G LTE is enough to explain the massive drop in profits.

HTC also puts the blame on weak European sales, and it’s a little hard to pinpoint the exact reason why this happened. Either HTC didn’t market the One X well enough in Europe, or perhaps everyone was expecting the Galaxy S3. Of course, Europe is in the midst of a debt crisis, and it’s possible that consumers are more apprehensive about spending their money on high-end devices (which is something that Samsung has suggested as well).

Regardless of the reasons of the recent sales slump, HTC needs to step up its game, both in terms of branding and innovation.

In branding, because, while Samsung was busy making a strong brand out of their flagship devices, the Galaxy S line, HTC was releasing a new “flagship” with a different name twice a year. At the same time, the Taiwanese kept launching other models, again with different names, some of which being just slight variations of their flagship devices. I’d say that hurt HTC a lot in the long term, because they couldn’t really create the kind of hype that Samsung created for the Galaxy S3 this year, and they had to start from scratch with the One X series.

While the One X has a beautiful design, and it’s definitely above the average smartphone released these days, compared to the Galaxy S3, it isn’t that spectacular, or at least it isn’t spectacular enough to beat the Galaxy S3 in sales. HTC’s Q2 earnings prove it. To get back in the game and start experiencing healthy sales and profits, HTC needs to release something amazing, that would overshadow anything that Samsung or Apple would come up with.

I don’t know what that amazing something could be, but I know HTC needs it, and I know that it’s not Sense 5.0. HTC is a hardware manufacturer, and they need to blow our minds with their manufacturing and design prowess, while also continuing to make powerful and competitive devices.

If HTC could also be one of the first companies to switch fully to stock Android, I’m certain it would give them the much needed buzz for their products. People might start to recommend HTC devices over anything else in the market, even if other devices have slightly better hardware.