Summary:

HTC is turning an eye to China now that U.S. smartphone sales growth has stalled. The company is reportedly working on its own mobile OS for China. That could pay off big, but it all depends on how HTC goes about it.

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After sales growth in the U.S. has stalled, HTC is turning to China. On Wednesday, the Wall Street Journal reported that HTC is creating its own smartphone operating system for devices in China and hopes to have available devices running the new platform by year-end. It’s not clear if HTC’s platform is based on Android, some other software or completely developed in-house.

HTC has previously voiced wishes to create its own mobile operating system, which is not an easy task. To be fair, HTC does have some software smarts: The company’s Sense software runs atop Google’s Android and has consistently matured through five versions now. But creating what’s essentially an add-on set of skins, widgets and apps to an existing operating system isn’t the same as creating an operating system. There’s much more involved due to the integration of hardware and software, plus the complexities of working with different radios.

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So this could be risky for HTC on two fronts.

First, the company could devote significant resources on the project with no guarantees of success. Given that HTC is now losing money due to flagging smartphone sales, it’s not in a position to lose more money for a project of this magnitude. Second, if the reported platform is built upon Android, HTC could be in a bad spot with Google as an Android hardware partner.

Remember that Acer last year built a phone for China’s Alibaba but it was squelched at the last minute due Google’s intervention. Google even suggested that Acer wouldn’t be allowed to build future Android phones if it moved forward with the Alibaba phone launch. Given that HTC’s smartphone focus is built on Android — it only makes a few Windows Phone devices — the company isn’t in a position to anger Google.

Without knowing the details of what HTC is working on, it’s too soon to say what the risk factor is, of course. Hopefully, this is just a basic, customized handset platform that hooks into China-based social networks, search engines and such. If that’s the case, this could pay off for HTC. If not, then all bets are off. But it’s a very safe bet that Google is keeping an eye on the project just as much as the rest of us.

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