HTC Makes Deep Cuts to R&D, Marketing, Amid Financial Panic
October 26, 2012 11:55 AM
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Troubled investments and troubled sales equate to a troubled HTC
Taiwan's HTC Corp. (
) is in trouble.
Struggling in global sales
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
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. (
) 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.
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.
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.
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Merger is only solution.
10/26/2012 6:21:24 PM
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.
10/28/2012 8:10:28 PM
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 would I do? I'd shut it down and give the money back to the shareholders." -- Michael Dell, after being asked what to do with Apple Computer in 1997
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