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Android is trouncing the competition when it comes to platform domination in the smartphone market — over half of all smartphones being used today — but that rising tide is not lifting all boats. Sales figures out today from the two largest Android device makers, Samsung and HTC, present two different pictures, with Samsung posting record profits and HTC’s declining. Here’s a few thoughts on why that might be the case.
First, the numbers: for the three months that ended in December, the Korea-based Samsung reported operating profit 5.2 trillion won ($4.5 billion), versus 3.01 trillion won a year ago, beating average analyst expectations of 4.6 trillion-won (via Bloomberg). Revenues rose 12 percent to 47 trillion won ($40.4 billion). Late last year, Samsung noted that it was on track to sell more than 300 million phones, a record for it.
HTC, meanwhile, saw its first drop in operating profit in two years. The Taiwan-based company today reported operating profit of NT$13 billion (NT$11 billion after tax) ($430 million; $364 million), compared to operating profit of NT$16.7 billion the year before. That fell short of Bloomberg’s estimates of post-tax profit of NT$11.6 billion. Revenues were also down on the same quarter a year ago: NT$101.4 billion ($3.36 billion), versus NT$104 billion a year ago. The statement from HTC did not give unit sales numbers for the quarter but the company had already issued warnings that they would not be as high as they had earlier hoped.
So why is HTC not doing as well as Samsung? Some areas to ponder:
Product mix: Samsung says it will be releasing its full results after board approval, so we don’t know how sales of its feature devices compare to those of the smartphone and tablet lineup, but one boost could come not from Android but its other line of mobile devices: its bada-based feature phones.
Gartner, which actually classifies those bada-based handsets as smartphones, showed that in Q3, Samsung’s feature phone line grew its share of the market and is at the moment actually surpassing the likes of Windows Phone 7 in terms of volume.
Bada, it should be pointed out, was in fact the only other “smartphone” platform besides Android that grew both market share and unit sales in that quarter. Market share was up to 2.2 percent from its previous share of 1.1 percent, and sales more than doubled to 2.5 million units in the quarter.
HTC, on the other hand, has taken the approach of pushing a smartphone-only line of products. That has limited its appeal to different segments of the market — especially with so many Android makers now looking to make cheaper and cheaper smartphones. Also, it doesn’t give HTC the same kind of entry-level device roadmap to tie in non-smartphone users to its brand for the longer run.
The 300-lb Apple in the room: HTC’s smartphone-only approach has another consequence. It puts HTC more directly in competition with another device maker that focuses only on smartphones, the high-end, and Apple (NSDQ: AAPL). On top of the existing heat from Samsung, as a Nomura analyst describes to Bloomberg, HTC has not yet found its “competitive edge” against these two.
Brand strength? Ironically, that competitive edge, it could be argued, may have been dulled by too many products within the smartphone-only category. Samsung and Apple have coalesced their smartphone ranges around single brands, respectively the Galaxy and iPhone lines.
And HTC? There are the Sensation, Wildfire and Rhyme — among many others — with no “Rhyme” or reason to the naming, and even different launch names in different markets (the allegedly-bad-selling Status nee Cha Cha being one).
“There’s a balance to be struck between giving consumers a good set of options and just confusing them with too much choice,” noted Benedict Evans, an analyst with Enders Analysis in London, to me. “Nokia (NYSE: NOK) made that mistake a few years ago and HTC has made it now. Even the naming is confusing – which is the better product out of the Sensation, Wildfire, Desire or Incredible?”
Some of these phones had some eye-catching differences — again, the Facebook-friendly phones like the Status/Cha Cha among them — but perhaps not enough to build a single identity, and even with HTC’s own UI skin, Sense, connecting the lot of them.
On the horizon: From reports out today, possibly spun out by HTC to divert attention from the quarterly results, the company will be adding even more devices to that lineup: it is reportedly gearing up to show off its first super-fast quad-core devices in February at the Mobile World Congress event in Barcelona. Again, that could be preaching to only a niche market; by the time that such speeds are in widespread demand there will likely be others producing them, too. Still, it does happen that 4G devices is a category that HTC happens to be leading at the moment, according to NPD.
One dark horse for HTC could be this alleged Facebook phone that it is reported to be developing: if that really materializes, and if Facebook manages to keep from upsetting the world over privacy any more than it already has, and if that phone really does offer something more than what the current crop of devices do for the average user, then this could help turn things around.
For now, though, it looks like Samsung’s called heads on that Android coin toss, and it’s winning.