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HTC’s meteoric rise is starting to fizzle

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Updated. Taiwan-based smartphone maker HTC again posted record sales, revenues and profits, but the company expressed a flat forecast for the near future. The average selling price (ASP) of HTC’s phones is declining, and the company is setting very flat expectations for the final quarter of 2011. In a fast-growing market where more people are buying smartphones, that’s a problem indicating that HTC isn’t keeping up with its competitors.

HTC has a PDF summary of its quarterly results here, but some of the important bits include:

  • The NT 135.8B ($4.53B) in third-quarter revenues is a 79 percent boost from the year-ago quarter, due to smartphone sales nearly doubling, but only 9 percent from the prior quarter.
  • HTC is forecasting fourth-quarter revenues to decrease to the prior quarter’s level.
  • After rising from $342 to $362 in the last quarter of 2010, the ASP of HTC handsets has fallen every quarter this year, now at $344. The company attributes this to local currency appreciation.
  • Smartphone shipments for the final quarter of 2011 are expected in the 12– 13 million range, which is lower than the most recent quarter.
  • HTC’s new production factory in Taoyuan should be completed in early 2012 and can ramp up to build 40 million handsets. That’s great, provided there’s strong demand for HTC handsets; otherwise, it’s a huge capital expenditure with a low payback.

The Android party is getting crowded

There’s little doubt that HTC’s recent rise is due to the company’s transitioning away from Microsoft’s (s msft) old Windows Mobile platform and then embracing Google Android (s goog) early. The company has seen huge jumps in sales and overall profit since making the change. HTC has also built several new Windows Phone devices, but so far, Microsoft’s new mobile platform hasn’t sold well enough to bring significant impact to any handset maker.

Up to this point, HTC has been able to capitalize on Google Android’s growth by churning out a wide array of handset models for many carriers. That’s both good and bad, however. Unlike Apple (s aapl) with its iPhone and Samsung with the new Galaxy S II smartphone, HTC doesn’t have a blockbuster hit that has people buzzing. Competitors do, and it’s paying off: Apple sold 4 million iPhone 4S devices during the first weekend of availability, and the Galaxy S 2 is Samsung’s fastest-selling smartphone, moving 10 million units as of September.

Samsung isn’t the only Android competitor that HTC is facing. LG, Sony Ericsson, Motorola (s mmi), ZTE and Huawei are just a few of those also using Google’s platform. The latter two in particular are fast growing their market share with low-cost but relatively capable smartphones; in fact, ZTE recently surpassed Apple in terms of global smartphone handset sales. So although HTC’s early adoption of Android has paid off, particularly over the past several quarters, there are more players in the game now.

Nokia will put pressure on the Windows Phone side

On another front, HTC will surely try to protect its smartphone sales by continuing to build handsets using Windows Phone. The company has already announced the Titan, Radar and Rhyme, both of which use the latest version of Microsoft’s mobile platform. Here too the competition is building, however, as Microsoft’s newest partner, Nokia, debuted a pair of handsets last week. These appear to have a higher build quality than HTC’s usual handsets and include some Nokia (s nok) software exclusives.

HTC continues to build excellent handsets. Back in June, I suggested that the HTC Sensation was the best handset available for T-Mobile customers, for example. And the company continues to innovate and add value by maturing its HTC Sense software interface that helps make Android smartphones easier to use.

But after that, HTC is essentially just another Android phone maker in a growing sea of other Android phone makers. Buying lifestyle brands, such as Dr. Dre’s Beats, won’t solve the problem, as Om alluded to when HTC spent $300 million on the purchase. I could be wrong, but all signs are pointing to HTC’s moving from a rising meteor to a falling star as it struggles to determine where the next batch of growth will come from.

Featured image courtesy of Flickr user ToastyKen

16 Responses to “HTC’s meteoric rise is starting to fizzle”

  1. Mobile hardware manufacturers are concentrating in the wrong place around the OS. How about like Samsung aiming for the next gen of mobile hardware? Like folding screens. Or mobile social accessories like watches. Why not make a watch the 3G connector, have it used like a headset too and connect to the smartphone with BT (in reverse to the way it is used today)? There is so much to do. The technology has at least 20 years of innovations before we may consider the mobile and social form factor as relatively stable (like home computers).
    Just saying that Samsung is that good, because it invests so much in hardware. Once they get the secret mojo for folding screens – it may be game over for all current competitors.

    • Kevin, good post. Here’s my three cents:

      1. I don’t think skinning is dead and what HTC and Samsung did with Sense and TouchWiz went way beyond simple skinning anyway. As hardware manufacturers increasing look to establish brand for product differentiation, I expect them to increase pressure on OS suppliers to allow them to do so.

      2. Nokia has an abysmal smartphone track record in the US. I suspect that they are delaying introduction of WP7 phones in the US to first gather momentum in their tradition strongholds. Nokia must first prove they can actually sell smartphones in the US before they’re a serious threat to HTC.

      3. HTC hardware running WebOS is an interesting idea. (If you check back I was the first to call the HP acquisition of Palm in the GigaOM blog comments.) Better yet, how about an HP HTC team up which gives HTC the rights to use and update WebOS. If HP is going to stay in the PC hardware game, they’ll need smartphones in their product mix. HTC is just the company to provide those phones.

  2. It looks like Google is making Android more difficult to skin starting with Android 4.0. Sense used to be a great differentiator. Prior to TouchWiz 4.0, Sense was clearly the best Android skin on the market. Competitors caught up, native Android became smoother, and now the future of Sense looks murky. HTC puts together decent hardware, but it needs to improve its industrial designs since software differentiation will be more difficult in the future.

    • Raymond, I think you’re spot on (as usual!). The Android skinning game is coming to a close, at least partially, although I suspect Samsung, HTC and others will find ways to modify the UI. Maybe (and this is admittedly a radical idea), HTC ought to consider its own platform to supplement what it has in Android and Windows Phone. Say… webOS maybe? Crazy, yes, but I’m not sure what else the company can do to continue growth, save a reduction in the number of similar models and more focus on blockbuster type handsets.

  3. Robin Lim

    I think falling margins is a given. Historically, phone manufacturers have higher margins than PC manufacturers, but I guess the business is going the way of the PC.

      • rick gregory

        Er… Kevin? What’s the difference between Apple and other handset makers?

        Right – Apple has something unique. If you want an iPhone you have one choice. Same for Macs.

        Now look at commodity PCs and Android handsets. To the typical smartphone customer or PC customer the hardware vendor brings relatively little differentiation. For most people the incessant buzz of new releases means nothing. People just don’t keep up on the various names of the various HTC handsets so they don’t really think about whether they have the HTC UBER, UBER Plus, Rhyme, Reason or whatever (names, rather obviously, made up). People only care about what’s out when they go to buy one. They decide on what to get based on some obvious things like screen size, etc, then they ignore the buzz of releases for another 2 years.

        We’ve seen this before… this is the Wintel story again where for the most part hardware vendors are interchangeable and where they race to the bottom in terms of margin because they can only really differentiate on price. That usually leads to cost cutting which leads to skimping on build quality, etc. Seen this movie before…

      • Rick, I completely agree. With Sense, HTC made their Android phones unique, but only compared to other Android phones. That’s why in a comment below I mentioned the radical idea of HTC buying webOS for its own use, i.e.: giving it something unique. ;)

      • rick gregory


        I don’t know if Sense was ever really a differentiator though. Does you typical walk-into-the-store customer really pay attention to the user interface enough to know that this one’s Sense, that’s Touchwiz, etc?

        Re WebOS – yes, this would help, but it would require HTC to do something different and be creative. They’d need to start doing what Apple does and think deeply about what the mobile experience should be or else they’ll simply copy trends which gives them the downside of being a follower without the upside of setting their own path.