Print 27 comment(s) - last by NellyFromMA.. on Oct 29 at 12:27 PM

Troubled investments and troubled sales equate to a troubled HTC

Taiwan's HTC Corp. (TPE:2498) is in trouble.  Struggling in global sales and a $40M USD hit from its failed OnLive cloud gaming investment, the Taiwanese OEM posted dreary financials for Q3 2012.

Revenue came in at T$70.2B ($2.40B USD), while profit came in at T$3.9B ($133.1M USD).  While over one hundred million in profit would be good news for many firms, you only need to glance at HTC's results to see the disturbing trend that has unfolded over the past several quarters:


HTC did have some success on the quarter.  It launched the HTC One X+, a beefed up version of its Android flagship device.  It also announced the 8S and 8X Windows Phone 8 smartphones, which it claims Microsoft Corp. (MSFT) considers the "hero product" of the Windows Phone platform.

Also in the good news category HTC reduced its excess inventory.  And it made a bold $35M USD investment in Magnet Systems, a U.S. firm which HTC describes as "the creator of next-generation software platform for [the] mobile enterprise market."

But in the bad news category, HTC's gross margin -- a measure of return on sales -- has slid from 28 percent to 25 percent in the last year.  And HTC's slumping earnings have forced it to cut R&D spending by 15 percent, cut advertising/marketing by nearly 45 percent, and cut administrative overhead by 30 percent.

HTC quietly brilliant
Struggling phonemaker HTC will be a lot more "quietly" brilliant: it's cutting its marketing spending by approximately 40 percent. [Image Source: Reuters]

Such cuts can be a double-edged sword.  On the one hand they may help HTC's financials in the short term.  On the other hand, cutting your marketing budget nearly in half and making substantial cuts to your R&D budget can hurt revenue in the long terms as customers will be less aware of your product and your product won't be as cutting edge.

Amid a slumping global economy HTC predicted an even worse holiday Q4 2012.  It expects revenue of T$60B ($2.05B USD) and a gross margin of 23.0 percent.  That's approximately 40 percent less revenue than HTC made last holiday season.

Source: HTC

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HTC failed to address what people wanted most
By BifurcatedBoat on 10/26/2012 1:31:45 PM , Rating: 2
They've given people powerful phones, but they're big and have poor battery life. I like Moto's strategy in that regard of becoming the company that offers you a big battery in a small package. Samsung of course has the best screens, and make their own processors. HTC just didn't seem to get it.

RE: HTC failed to address what people wanted most
By Accord99 on 10/26/2012 1:53:14 PM , Rating: 3
Except they did address what people want.

-The One X LTE has better battery life than the GS3 LTE even with the same SOC and the GS3 having a bigger battery.

-The One X also comes with what is widely regarded as the best screen ever put on a smartphone.

But that's not enough to overcome the current momentum of Samsung being THE Android phone to get.

RE: HTC failed to address what people wanted most
By quiksilvr on 10/26/2012 3:18:16 PM , Rating: 3
In other words, it all boils down to marketing. If you can't market it, no one will know about it.

Look at Google Wallet. It's been around for over a year now and we STILL have limited Pay Pass options in the country. It isn't in Wal-Mart. Or Best Buy. Or Target.

If you don't market it, people won't know about it.

By melgross on 10/27/2012 10:56:22 AM , Rating: 2
Don't compare it to Google Wallet in marketing. That's a completely different story. Businesses aren't interested in Google Wallet, and without that, no amount of marketing will force them to spend several thousand per store to support it.

By NellyFromMA on 10/29/2012 12:27:29 PM , Rating: 2
Their rep is hurt. If they can continue to demonstrate their phones are consistently good, that will restore faith. Short of that, either go budget or get out. Can't see it any other way.

RE: HTC failed to address what people wanted most
By Samus on 10/27/2012 1:37:26 AM , Rating: 2
I'm sorry but I know three people who returned their HTC One X or One S because Sense 4.0 kept force-closing their apps, a bug which wasn't addressed until AUGUST, 4 months after the phone came out!

HTC is dying because their support SUCKS.

By fteoath64 on 10/29/2012 4:20:19 AM , Rating: 2
"HTC is dying because their support SUCKS."

This and lack of innovation. Their obsession in the high-end market has cost them dearly. Why no microSd slot in One X ?. They should put two in there!!!.

By Totally on 10/28/2012 9:53:40 AM , Rating: 2
Too late after owning several HTC phones, I finally decided to look elsewhere especially when it isn't hard to find better offerings. Just because the offer one phone with good battery life now isn't a compelling reason to give them another shot.

RE: HTC failed to address what people wanted most
By Schadenfroh on 10/26/2012 2:34:58 PM , Rating: 2
They failed to allow people to comprehend what they want. HTC has so many overlapping / cannibalizing products it is unreal.

Customers have no clue if the Evo 2GTX is as good as the Revive 10 or the Notice 4cx Double Plus Triple Good.

It reminds me of the old school GM, where one had 7 types of cars, roughly equivalent, at roughly the same price point from their multitude of brands.

By drycrust3 on 10/26/2012 4:17:13 PM , Rating: 2
Maybe one option for them is to allow a purchaser the option to download their own choice of OS. That way they don't need to actually supply two (or more) "same phone, different OS" phones with all the carry on that goes with that (different boxes, different instruction manuals, different helpdesks, etc. For example, say that when the phone arrives at the store it has a very basic "phone and text" OS (avoids unnecessary holdups when imported), then at the time of purchase the purchaser is given a free upgrade to one of several choices of OS, e.g. decides whether they want Android 4 or Windows Phone 8, then the sales person installs the requested OS, downloads some courtesy features e.g. music for Windows 8 or some useful apps for Android, checks it works ok with the customer's SIM card, and customer leaves store happy.

RE: HTC failed to address what people wanted most
By Reclaimer77 on 10/26/2012 5:38:01 PM , Rating: 2
What the hell are you talking about? Samsung just sold like a gillion giant phones. Even Apple made the iPhone larger. Where are all these people who want a "small package"?

And poor battery life? The One X has GREAT battery life.

By wordsworm on 10/27/2012 9:18:33 AM , Rating: 2
Not my fault. I bought two of them this year. I regret the first one, but that's because it's a Windows phone. I do wish it had a micro sd slot.

The second was for my wife. It's a great little phone. But, my own tastes are rarely, if ever, a valuable metric in a company's success.

By casualsuede on 10/26/2012 6:05:32 PM , Rating: 2
So a big chunk of this is not true, just perception. Motorola only has one device that has a big battery, most of the other devices, their battery is not better (or worse) than what LG, Samsung or HTC does.

Samsung makes the most vibrant screens (with AMOLED technology, that HTC and other handset manufacturers make), but HTC has had devices with much better screen quality. This includes One X with the S-LCD2 screen which has been reported in many outlets as superior to that of GSIII. The upcoming DLX phone at Verizon is even more high resolution with true 1080p and 440 ppi.

As for processors, that is meaningless. Also, most of Samsung devices uses either Qualcomm or ST/TI chips.

But while Bifurchated Boat makes a poor argument, what he says speaks volumes. HTC has bad press, and it is catching on. Whether it is fixed battery and memory, lack of upgrades to ICS, quality issues, it is beginning a perception that HTC is behind the times and arrogant to consumer wants.

Also, the truth is that Galaxy S3 isn't selling volumes because of it's superior quality, or technology. It is because they are spending a Brinks truck of money per hour to sell the device and their marketing message have been effective. They have effectively bought the marketplace with a great device. They deserve the sales numbers they are getting.

The truth is that the Motorola MAXX is also a great device, the LG Optimus G is a great device, the HTC One X is a great device. But they are being dwarfed by a population who have made up their minds to get a Samsung or Apple before they walk into a store.

RE: HTC failed to address what people wanted most
By ummduh on 10/26/2012 8:16:01 PM , Rating: 2
I made my choice to go to SG3 for 2 very important reasons:

microSD cards
easily flashable

My wife and I both came from HTC phones before, and they were decent. I liked the OneX (and the One S too) very much, but those two issues blew it for us. Honestly no mSD card is the biggest deal breaker.

By piroroadkill on 10/29/2012 5:59:54 AM , Rating: 2
There you go. They need to have microSD slots, and I would hope they could provide rooting information officially, and allowing to flash anything onto it. They could provide a good set of instructions to return it to stock should you brick it.
I also think they need to take bigger batteries more seriously.

By reddog007 on 10/29/2012 8:05:06 AM , Rating: 2
The huge issue is that fact that their Verizon flagship is still the Rezound! Why hasn't their hot product the One's, come to Verizon yet?!

I would have gotten a One well before the SGS3 ever came out if the One was on Verizon.

HTC might has some issues with updates but I don't care. I go custom which is far superior then OTA. Had ICS on my Rezound LONG before it ever when OTA. Plus I have had my fair share of issues on my SGS3, one of them being its update system. HA!

By bupkus on 10/26/2012 1:11:18 PM , Rating: 2
Perhaps an agreement between several struggling competitors to share IP and R&D efforts could bring a reduction of overhead while maintaining their unique identities in implementation.

RE: Consolidation
By GulWestfale on 10/26/2012 1:33:01 PM , Rating: 3
with SOCs being made by only a handful of companies, and screens by another handful, and OSes by either google or MS, isn't the only "unique identity" smartphone makers have their crappy, laggy, useless android skins?

RE: Consolidation
By bupkus on 10/26/2012 1:56:16 PM , Rating: 2
Maybe so, or perhaps just the contours in shape, the choice of battery, the colors and materials of outer skin, the name of the offering company.

I kind of like the idea of a t-shirt that says:
"I successfully copied Apple but only got this crappy iPhone"

Disclaimer: Not responsible for the opinions of the UK courts.

I could be wrong but
By Snoop on 10/26/2012 2:13:50 PM , Rating: 2
HTC really needs to take the samsung/apple approach of making a solid model (or maybe 2) and stick with it. Stop spreading your resources over 10 different phone models on different carriers. Spend the time to make an elite phone, pour your efforts and support into this model. Only release a new model yearly. No more half baked revisions every six months.

RE: I could be wrong but
By casualsuede on 10/26/2012 6:08:46 PM , Rating: 2
The problem is that carriers want diversity of a handset's makers product line and even worse...The want EXCLUSIVITY.

It will not be possible for HTC to make just one or two models and survive. While it seems that Samsung only has the Galaxy S3 and Note 2, they will launch over 40 models this year because the carriers demand it of them. Until HTC OWNS it's own ecosystem that is desired, they cannot be the next Apple.

Merger is only solution.
By casualsuede on 10/26/2012 6:21:24 PM , Rating: 2
I feel that HTC will never make it because they do not have the scale or the business diversity to exist in a world that is being ruled by GIANTS.

Apple is the wealthiest company known to exist, Samsung makes more money than God. Motorola is protected by Google, even "little fry" like LG, Huawei and ZTE have revenues in the 50 Billion+ range.

HTC cannot survive because they do not have the scope of size. They do not make their own hardware and they rely on the software of others for their devices.

I personally still feel that they need to super-merge with the remaining players in the marketplace. Do a merger between Nokia, HTC and RIM. It is very risky, but many of the companies have alot of benefits. Nokia has great RF performance, can build a quality product and has huge amount of SCALE, especially with their feature phone line (chipset deals with Qualcomm, screen purchasing ability). They are also the technology partner of Microsoft, and despite what people feel, most analysts feel it will be the third alternative, and a growing one.

RIM still has alot of relevance in B2B and Enterprise and their BB10 could be something that keeps them there. They still have BBM, which is keeping customer loyal.

HTC is a leader of Android and has alot of clout and is a swift moving organization. There is still alot of passion that HTC needs to unlock.

All the companies have alot of synergies but a dwindling amount of cashflow because they cannot make it on their own because they are lacking the things that the other company has. Nokia's scale, engineering and Windows access. HTC design and swiftness in creating products and RIM's prowess in B2B.

If they could all merge with Qualcomm, that would be even bigger, then they would have a chipset manufacturer and huge amounts of steady cashflow.

RE: Merger is only solution.
By publicspace on 10/28/2012 8:10:28 PM , Rating: 2

I don't want to sink your ship, but even as an idealist this is complete fantasy. I don't disagree, this would be a great strategy except for a fatal flaw: You're talking about merging one Canadian, one American, one Finnish, and one Taiwanese company - that is practically every embedded culturally different management style that exists in the mainstream. It would be an epic accomplishment, not just because of the technology, but in management research it would be just huge. Like - if they pulled it off all of the managers would become millionaire consultants for successfully handling that merger.

I'm an idealistic 25 year old that is still naive when it comes to what is possible and what isn't, but I can tell you that is incredibly, incredibly, far fetched of an idea.

What R&D?
By DrApop on 10/26/2012 2:56:38 PM , Rating: 2
It is not like these companies, including HTC need to do a whole lot. The OS is already available, all the apps are already available, the arm cpu is there, the dialer is there,the SMS text is there, the LCD is already available.

I mean, what type of R&D do these phone makers really need to do? I am sure there is some stuff they have to do but a lot of these phones all seem to look and run pretty much like all the rest of them.

It is like if I am going to build a new computer.....sure i need to research what I want to go into my box but it is not like I need to do a bunch of R&D......everything is already there!

Support, support, support
By bug77 on 10/26/2012 4:49:24 PM , Rating: 2
I will not buy another HTC phone after having to wait almost a year for ICS. And I got ICS after JB was already out and was told I won't get JB at all.
Fwiw, I will buy whatever Nexus phone floats my boat at the time, if that is made by HTC, so be it.

Wrong answer.
By JKflipflop98 on 10/28/2012 9:09:11 AM , Rating: 2
They're cutting spending in the two most critical areas for a consumer tech company. R&D is vital to any tech company and especially so in the "eww that two week old phone is soooooo obsolete" mobile space. Everyone needs to market their product. That's true in almost all businesses.

Marketing cuts??
By warisz00r on 10/26/2012 12:38:53 PM , Rating: 1
Marketing is a significant factor behind the successes of the two biggest mobile industry player: Apple and Samsung.

"Paying an extra $500 for a computer in this environment -- same piece of hardware -- paying $500 more to get a logo on it? I think that's a more challenging proposition for the average person than it used to be." -- Steve Ballmer

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