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 old Windows Mobile platform and then embracing Google Android 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 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, 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 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

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