HTC – Blow upon a bruise.

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HTC needs to do something different.

• The make or break time is fast approaching for HTC with long term CEO Peter Chou replaced, the head of industrial design quitting after 18 months and a flagship product that is almost indistinguishable from last year’s model.
• HTC’s Q414A numbers painted a picture of a company holding on by the skin of its teeth with the company just about breaking even on a cash basis.
• Clearly, patience has run out and the chairwoman and co-founder of the company, Cher Wang will take over.
• Peter Chou is transitioning to a strategic role as head of its Future Development Lab but I very much doubt if will be long at HTC.
• This has been compounded by the departure of its lead industrial designer (Jonah Becker) after just 18 months.
• I suspect that he has been a casualty of the internal struggle going on inside HTC between design and sales.
• Sales need hardware specification in order to sell devices to specification obsessed customers but this often comes at the expense of design.
• The wart on the back of the iPhone 6 is evidence of a compromise between having a high specification camera or a sleek and cool design.
• Chairwoman and CEO must bring this conflict under control if HTC is to have anything resembling a decent recovery.
• HTC problems are legion:
  • First. HTC was once one of the best companies at writing software for smartphones but over the last 5 years that edge has been competed away.
  • What is left is a company that has nothing with which to differentiate its products from the rest of the Android hoard.
  • Second. It has attempted to differentiate through hardware to the discerning buyer of an Android device.
  • Unfortunately, the highly specified and sleek Samsung Galaxy S6 does a better job of appealing to that segment, albeit at a slightly higher price.
  • Third. HTC is badly subscale. At 3.2% market share it cannot spend enough on R&D or marketing to make a dent in its many larger and better financed competitors.
• All of this adds up to a pretty bleak outlook for HTC both in the short and the medium term.
• Branching out into other areas such as activity cameras is unlikely to help much as this segment is already slowing down and is showing every sign of commoditising fast.
• Importantly, HTC’s stable situation in terms of profit and cash flow gives it some time in which to act but unless something changes soon its market share and its financial position are likely to worsen.
• I would not go near any of the Android manufacturers as the vast majority of the benefits from their investments end up accruing to Google.
• Google is the only place I would look at within the Android community.