At what point does HTC stop making phones, shut down and return money to shareholders?



Taiwanese smartphone maker HTC believes the middle-market will help it return to profitability this year. But the signs aren’t pretty.

Sales have fallen year-on-year for 27 consecutive months. (What is that saying about ‘the trend being your friend’?)

In 2011, it sold one in every 10 smartphones worldwide. Today, that number is below two percent.

Shares on the Taiwan Stock Exchange are down 90% from the peak in April 2011.

Back then, HTC was a world-beater… Investors and analysts ignored the fact that just years earlier it was nothing more than a contract manufacturer for companies like HP and Palm. For a brief moment in time, HTC had a commanding position in what was then the largest smartphone market in the world, the US. Sure, Apple and Samsung were ahead, but it was early days still.

There really wasn’t anything idiotic that caused its subsequent slump (not anything like BlackBerry’s leadership failing to transition to a new platform (any new platform!) for years)… After all, HTC had hitched its wagon to Android — the largest platform in the world.

HTC simply didn’t have the scale to compete against Samsung. Not the reach, not the component expertise, not the marketing muscle, not the relationship with operators… none of that.

People often forget that Samsung Electronics (of which Samsung Mobile is part) already had a massive global supply chain for things like flatscreen TVs, microwaves and washing machines. Plus, it was making mobile phones before smartphones arrived on the scene. In 2007, it became the world’s second largest maker of mobile phones (after Nokia), overtaking Motorola!

HTC didn’t have a global supply chain (a fact that shouldn’t be underestimated). Its entry into markets, for example, was often with a local distributor or partner so it had very little control over brand, support, or marketing.

This fragmented, scattergun approach (there really wasn’t any other option for a company that was growing as fast as this) meant that marketing decisions were often decentralised. Its first global advertising campaign launched in late 2009. But the HTC brand position was never clear. It didn’t have the deep pockets to establish the brand as the ‘leader’ in significant markets globally. Rather, it relied on operator support to range, promote and sell its phones. What followed was a series of schizophrenic campaigns with a few changes in its chief marketing officer position adding to the chaos. (Apparently a new ad campaign featuring Robert Downey Jr will fix all that…)

Despite all of this, HTC makes the best high-end Android phones around. Truly brilliant devices. Reviewers agree. But reviews mean nothing without reach and scale.

It doesn’t help that HTC’s spent the better part of the last two years chasing the unattainable goal of getting back to that peak from 2011. In many ways, it did the same things (made the same mistakes) over and over somehow expecting a different result.

And now the shift to focus on mid-tier and low-end smartphones to juice sales, as reported by Reuters this week. Co-founder and Chairwoman Cher Wang is reported as saying “The problem with us last year was we only concentrated on our flagship. We missed a huge chunk of the mid-tier market.” This is a dangerous game. Samsung’s busy finding out just how untenable this market segment is. When you play in the middle and the low-end, you find yourself under full assault from cheap rivals in China (and the strong regional players, like Karbonn and Micromax in India, for example). If Apple has the high-end (and is slowly moving down), and the cheap Chinese Android devices are king of the lower end… what part of the market do you think gets squeezed?

HTC founder Peter Chou relinquished some of his executive duties late last year to focus on innovation and its product portfolio. Wang’s taken over sales, supplier relations and marketing on a temporary basis. Perhaps she can make an impact on these areas where HTC is struggling. But that’s not going to stop the inevitable from happening.

It was Michael Dell who (in)famously suggested in 1997 that if in charge, he’d shut down (then near bankrupt) Apple and give the money back to the shareholders. Of course, he was laughably wrong about Apple. But, it could be argued that Steve Jobs pioneered the greatest business comeback of all time.

Shouldn’t HTC give it all up and return money to shareholders?



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