HTC, the once high-flying Taiwanese smartphone maker, is finding that reaching those lofty heights again is proving a lot more difficult than planned. Increasingly, its plans for a comeback are faltering in the face of bigger giants with little hope for a breakthrough.
The company announced third quarter results Monday and reported a 79 percent drop in profit with NT$3.9 billion ($133 million) in income, short of analysts’ expectations of NT$4.43 billion. Revenue for the third quarter came in at NT$70.2 billion ($2.4 billion), which was at the low end of its revised guidance for the third quarter. Analysts had expected that HTC would generate about $2.9 billion in revenue. A year ago in the same period, HTC pulled in NT$135.8 billion or $4.5 billion in revenue. The third quarter results continue a downward trend for HTC, which saw revenue decrease by 20 percent from the second quarter.
HTC has tried to simplify its smartphone lineup as competes against Apple (s aapl) and Samsung. While the One line has been well received by reviewers, it is now competing directly against Samsung’s Galaxy S III, which sold 20 million units in first 100 days and the Apple iPhone 5, which did 5 million units in the first weekend.
HTC’s woes underscore just how hard it is to eke out a strong smartphone business in the shadow of Apple and Samsung. There is still room to grow but with global smartphone sales slowing, vendors need to increase market share to grow.
HTC is hoping to get some traction with new Windows Phone 8 devices, the 8X and 8S, but it will be going toe-to-toe against Nokia, which can’t afford to lose out on its Microsoft bet and Samsung, which is showing more interest in putting out top notch hardware for the Windows Phone platform. And that again highlights the competitive differences between HTC and bigger rivals, which can control the supply chain and make their margins meaningful.
HTC is also hoping that China can be a growth opportunity but it faces some of the same challengers in that market as well as cheaper Chinese manufacturers such as ZTE and Huawei. HTC has some growing brand recognition in China, but it will be forced to spend a lot to keep its name up there alongside bigger rivals or local manufacturers. And with HTC set on not building cheap devices, it has to stand out among the big boys while fending off the advances of cheaper rivals.
HTC isn’t dead yet, but the current economics do not favor a significant turnaround. And with bad bets on Beats and OnLive, HTC has even less margin for error.