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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