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A young Steve Jobs (left) with John Sculley  (Source: AP)
CEO's relentless perfectionism and obsession with product propelled company, but now is killing it

HTC Corp.'s (TPE:2498) investment in Beats Electronics LLC is perhaps a microcosm of the company's greater fortunes.  In 2011 HTC acquired a 50.1 percent majority stake in Beats, looking to score its digital-to-analog converters to differentiate its smartphones. At the time HTC was surging, briefly becoming America's largest smartphone seller.  

In 2012, though, it was doomsday for HTC.  Outmarketed by Apple, Inc. (AAPL) and Samsung Electronics Comp., Ltd. (KSC:005930), HTC's financials slid.  It was forced to sell half its stake in Beats.  And this week it was revealed that Beats is eyeing a buyout of HTC's stake.  The news came just weeks after HTC slashed its sales targets, announcing a dire financial outlook for Q3.

I. The Fall of the "Steve Jobs of Taiwan"

At the head of the waterlogged ship is Peter Chou, HTC's enigmatic CEO and co-founder.  A relentless perfectionist, his obsession for perfect, stylish designs which place product above profits have some likening him to a young late 80s era Steve Jobs.  And like Mr. Jobs he's discovering that being a disruptive force in the market is not always a fiscally rewarding strategy in the long term.

HTC is currently in tenth place, a miserable lot for the once promising Taiwanese OEM.  A lot of executives have shuffled about at HTC, but investors are still waiting for a potentially bigger change still -- the resignation of Mr. Chou.

Peter Chou
Peter Chou is HTC's taskmaster.  His company's biggest Android hit came from a whiteboard design he sketched, perfected, and took to maker in only three months.
[Image Source: Android and Me]

Mr. Chou reportedly told the company's top executives at a late 2012 meeting that if the flagship HTC One was not a success, he would step down.  The One did manage to show strong early sales, before dropping off in Q2.  While that may create enough ambiguity for Mr. Chou to wiggle out of his resignation promise, the company's financial woes have many investors hunting for a potential replacement candidate.

As stunning a fall as it has been for HTC, it is arguably an equally stunning fall for Mr. Chou.  Referred to by some as the "Steve Jobs of Taiwan" or "the next Steve Jobs", Mr. Chou started his career at Digital Equipment Corp. (DEC).  In late 1997 -- just prior to DEC's acquisition by Compaq in 1998 -- Mr. Chou decided to launch a new Taiwanese equipment designer.  HTC was born.

Initially HTC made a name for itself as an original design manufacturer for companies like Hewlett-Packard Comp. (HPQ) which sold its rebranded PDA and tablet designs.

But as the smartphone era started HTC recognized Android was a vehicle to make its own name known in the world's largest markets including the U.S.  Mr. Chou saw his company grow meteorically, but new it needed more -- a flagship device like Apple's iPhone.  So in mid-2011 he drew on a white board a design that would become the Sensation XL.  

The Sensation XL

A smartphone design usually takes up to 18 months to execute, but the Sensation XL was released in October, three months later. Mr. Chou drove his engineering staff and manufacturing partners to turn out the product at a ruthless pace that would make even Steve Jobs proud.

II. Placing Product Before Product is Killing HTC

But Mr. Chou's impromptu style has recently become an impediment.  Much like how Apple stagnated after the big bang of the Apple/Apple II, HTC is in a sales rut.  And much like Steve Jobs' struggles in the mid-1980s, the slump has some questioning Mr. Chou's once lauded management style.

Comments one investor to Reuters:

Having the ability to just tear up a plan and say, OK, this is the new thing and we're going to get it done fast. That's Peter.  The weak point is they don't really have a long term strategy.  It used to be a strength, and now is becoming a weak point as they don't have a clear direction going forward.

HTC's competitor Samsung lacks the "wow" factor of HTC's flagship products like the One (and are even being beat in reviews by HTC at times), yet are outselling it due to a steady pace of iterative updates versus HTC's sporadic strokes of genius.

One former executive tells Reuters:

There's a culture in HTC not to discuss numbers at senior management meetings.  Those discussions tend to become hard or ugly, but if you don't solve it, it becomes bigger.

Steve Jobs put product perfection before finances and it cost an early Apple.

Steve Jobs in his younger years shared this aversion to putting sales before product.  At a speech he once remarked:

John Sculley ruined Apple and he ruined it by bringing a set of values to the top of Apple which were corrupt and corrupted some of the top people who were there, drove out some of the ones who were not corruptible, and brought in more corrupt ones and paid themselves collectively tens of millions of dollars and cared more about their own glory and wealth than they did about what built Apple in the first place — which was making great computers for people to use.

He regularly said he had no regrets about losing a quarter billion dollars in a quarter, during Apple's lean years.

III. No Successor in Sight

But the days of a disruptive player like Peter Chou's HTC or Steve Job's Apple dominating the smartphone market appears to be waning. The smartphone industry is becoming a mature market, similar to the auto industry, and the players who are dominating it our not the disruptors, but the iterators -- Tim Cook's Apple and Kwon Oh-hyun's Samsung.

For now HTC's board is standing behind Mr. Chou.  Comments the board:

HTC's board and broad employee base remain committed to Peter Chou's leadership. The (flagship) HTC One product family - which has been met with accolades by media and consumers alike - was a result of Peter's vision and leadership, and speaks for itself.
But if the market continues to prefer iteration over polished, but sporadic launches HTC's future is in jeopardy as long as Mr. Chou is at the helm.  The question plaguing investors is if Mr. Chou was to be ousted, who would take his place.  Comments one unnamed investor, "Part of the weakness is there is no obvious successor, and that's not been good for morale."

HTC sign
HTC has no clear successor to Mr. Chou. [Image Source: Reuters]

So for now, this Steve Jobs-esque figure continues to lead his company even as its sales slump below 5 percent of the smartphone market globally and it approaches its first losing quarter in its history.  But if there's one thing Mr. Jobs taught the world, it's that it'll be hard to keep a relentless perfectionist like Mr. Chou down, no matter what beating the market deals him.

Sources: Reuters, WSJ

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RE: HTC needed a phone people knew about...
By Reclaimer77 on 8/22/2013 3:41:09 PM , Rating: 1
What I remember is HTC was virtually on top of the smartphone industry. They were a GIANT just a few years ago:

Until they began being sued and double-teamed by Apple and Microsoft. Apple even successfully blocked HTC's then top model phone, the One X, with a ITC import ban. As well as the Evo 4G Sprint models.

This was the turning point really. It's impossible to calculate accurately the damage done to HTC financially. But suffice to say, millions of people who were anxiously awaiting the purchase of these devices were forced to seek alternatives.

HTC has made mistakes, sure. So has Apple, Samsung, and everyone else. But it's the despicable tactic of legal patent abuse by their competitors that is the root cause of their woes today.

No one knew which HTC phone was the best, or where it stood against the competition. If they'd stuck to a simpler 'premium', 'mid range' and 'budget' product model and not stretched their resources, I think they'd be in better shape right now.

Samsung seems to be doing just great. And they make more different phone models and trim levels that you can't even name them all off the top of your head.

RE: HTC needed a phone people knew about...
By Mitch101 on 8/22/2013 5:21:52 PM , Rating: 2
HTC limped in. Only with the HTC One did they actually make a device that's better than Samsung. Thats why Samsung started an anti HTC One campaign against it. Realizing HTC had an opportunity to steal Samsungs thunder Samsung used social media/sites like this to un-cool the HTC one to keep people from buying it.

Social media ruins devices far more than anything else. Look at all the negative press and judgement that occurs way before something is released.

RE: HTC needed a phone people knew about...
By Reclaimer77 on 8/22/2013 5:35:49 PM , Rating: 2
Social media did the damage, right. Not having handsets blocked from import by Apple and being forced into giving Microsoft a huge cut of every handset sale.

HTC limped in.

Limped in? By quarter 3 in 2011, HTC was the largest smartphone vendor in the US with a 24% market-share.

Look at all the negative press and judgement that occurs way before something is released.


RE: HTC needed a phone people knew about...
By Mitch101 on 8/22/2013 6:09:42 PM , Rating: 2
HTC also violated Nokia's exclusive agreement on the MIC tech.

It seems the industry pattern is to violate patents and delay the court dates then ask for forgiveness or replace with a new device and cry foul the whole time instead of license it or develop new from the beginning. They should call that Samsunging. HTC has enough money and patented enough to enter into a cross license. Everyone needs to knock off the cry foul baby methods when they violate patents because they knowingly do it. Especially these companies with money that can afford to enter into agreements but they chose to try and maximize profits by not licensing it and this time they got bit hard. Google is the biggest cry baby of them all and there are numerous counts of them being invited to go in with Microsoft and Apple on the patents purchased that cause Apple and Microsoft to reap royalties on them so why should they not get royalties on what they paid for? Why purchase any patents then if everyone is free to infringe on them. Google was invited to participate they chose not to now they have to pay a fee. Sucks to be cheap asses.

HTC Limped in with weak Android and Weak Windows Phones I dont recall seeing any flagship device until the HTC one.

Example for you would be anything Microsoft. XBONE and any device that doesn't have the highest specs despite not needing them.

By Reclaimer77 on 8/22/2013 6:41:31 PM , Rating: 1
Okay whatever, since reality and backed up facts wont work, just go ahead and substitute whatever reality you see fit. You're delving into all kinds of tangents when the point is very clear.

HTC was a dominant force in mobile phones just a few short years ago. There is NO way to dispute this.

I dont recall seeing any flagship device until the HTC one.

HTC Titan? Titan II? The One X? And more, depending on what you call "flagship".

These were not weak phones, just shut up already. Your slant is just poisoning all reason and sanity.

XBONE and any device that doesn't have the highest specs despite not needing them.

Wait, didn't you just call HTC phones "weak"? But now specs DO matter...okay whatever, moving on.

The XBONE one's specs had nothing to do with it's negative press. Microsoft's original consumer-abusive plans for the Xbox and forced DRM is what caused the social media outcry against MS, and you know it.

The fact that the PS4 is flat out better built, for less money, is just salt on the wound.

"If you can find a PS3 anywhere in North America that's been on shelves for more than five minutes, I'll give you 1,200 bucks for it." -- SCEA President Jack Tretton

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