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Here’s why HTC is losing the smartphone game (Hint: There’s no One reason)

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Once the darling of the Android(s goog) smartphone market, HTC experienced yet another quarter of missed expectations, lower revenues and meager sales. As Bloomberg notes, the company posted a first quarter net income of NT$85 million (U.S. $2.8 million); a 98 percent decrease from the year ago quarter. HTC says monthly revenue for March was NT$15.82 billion; a boost of 39.69 percent from the prior month but still around half of the revenue from March 2012.

The company and media are starting to spin the story a bit, partially blaming the delayed new flagship HTC One handset. But let’s be honest: a few weeks’ delay for the new handset due to case and camera sensor component shortages aren’t what’s been slowly killing HTC’s momentum. The issues have been in the works for nearly two years: being beat by Samsung in the marketing department, investing in questionable technologies and not realizing that while consumers may complain about plastic phones from competitors, they’re still buying those devices.

HTC OneTo be sure, the smartphone game is one of timing and momentum. So delays of the HTC One aren’t helping the situation. But that device alone won’t instantly turn around a company that’s been free-falling for the past 18 months. The One was introduced on Feb. 19 and due out in mid to late March. Even if the phone did launch on time, it couldn’t save a bad quarter with just two weeks of sales. The next month and quarter could be negatively impacted if delays continue, but faulting delays on the prior quarter doesn’t make sense.

Here are the real issues for HTC’s challenges

So what’s the deal with HTC? The company is facing the same problems it has had for several quarters. It doesn’t have the marketing budget of a Samsung, for starters. That means it relies heavily on carriers for support and that’s risky business. Then there was the $300 million investment in Beats Audio; a nice feature that a few crave but not one that’s going to sell phones to the masses. HTC later sold back half of its interest in Beats.

Lastly, there’s the perception of how much people value well-built Android hardware. I’d argue that HTC designs and makes some of the best Android handsets. They have heft but aren’t too heavy, have few actual hardware issues and are solidly built. And there are many folks that don’t like the “plasticky” cases of competitors’ phones — I’m looking at you, Samsung.

Air Touch on Galaxy S 4But in the overall Android market, which is quite vast, software trumps hardware. And while I don’t intend to point at one player here, it’s Samsung’s plastic phones that are pushing the envelope faster with software. When people see unique features — think multiple apps on the screen, hovering with a finger, exceptionally good note-taking with a stylus — they can overlook something such as phone case quality.

That doesn’t mean HTC isn’t making strides in software; they are. But I’d say they’re a half-step behind Samsung’s pace and when you combine that with the other factors involved — a marketing disadvantage and brand awareness, to name a few — it’s easy to see the problem.

The HTC One will help boost revenues for the company, of that I have no doubt. But this one phone, delayed or not, won’t save or damn the company. Much of the damage has already been done. Now it’s up to HTC to react in a way that convinces people it can turn things around in the long run. For now, it’s Samsung’s galaxy and HTC is just living in it.

Update: This post was updated at 8:33 am to correct the reference for HTC’s March revenue from million to billion.

14 Responses to “Here’s why HTC is losing the smartphone game (Hint: There’s no One reason)”

  1. da mellman

    you guys have all great arguments. i hate to make general and biased based comments… but to each there own..I was definately sold on the S4 because of the options (features) it posses. Remeber these are options which is a good thing because they are OPTIONS right? i can choose to use them are not :). but now with all the gliches i hear the S4 is having . (battery issues) (lag problems) overheating, fuzzy letter display ect…. i just might have to swing to iphone8….. oops i meant to say the HTC One… I just want my phone to work well, be durible, customisable , and fast functioning.. build quialty?? yeah thats why my phone will have a case on it regardless. but the SD card and battery is killing me iphone8… oops i meant to say htc one.(dang)!i own an htc amaze. and it worked pretty damn well when i first got it. Even with my 32gb external memory card (which is not filled up now) my used up internal memory(9.7gb) made my phone have a lot of issues. i.e resets on its own, frezze , lag, camera disfuntion, which is a nono for me, costant pressing buttons on it own,sond, and many more…. i dont want to go through that with my new phone so now its up in the air again…
    p.s. heres something both companies can think about. give ne an options to choose what i want… please sammy when sre you gonna sell your 64 gb in the usa????? come on!

  2. I think your analysis make sense, but actually is not just a marketing deal, first of all they both have a different way to approach a customer, I think is something not related to the sphere of Marketing and Communication but is more related to the history of the brand in those last years.

  3. Yuvamani

    I disagree that Samsung beats HTC with software.

    I think Samsung has the worst software among all Android vendors. Where they do beat other Android vendors is

    1- Marketing
    2- Hardware and their deeply integrated components – Exynos is made by Samsung, For Samsung. Originally they beat HTC with that Super AMOLED screen which was also made by Samsung for Samsung
    3- Deeply integrated supply chain …
    4- Great distribution presence in developing markets. People in India for example would buy a phone only if it can be serviced and Samsung has service centres everywhere.
    5- One brand – One phone .. As opposed to HTC which launch Sensation X,XE,XL,XS,X+ etc etc followed by the One X, S, V, X+, X+ AT&T etc

    HTC actually has better software even if sense tends to be a tad heavy, They did have a bad habit of being late with software updates but they are not much worse than Samsung in that respect… They also have far better and well made phones but all that does not matter when you have Samsungs strengths in 1..4

  4. John B.

    I would like to know why authors of tech blogs have become so hell bent on trashing “Plastic” phones as of recently. I’ve owned cell phones since 1985. Not once have I had a problem with phones made of plastic material. It appears the bandwagon of status quo is running amoke with enthusiastic willfulness while disregarding what has always worked.

    In fact, the plastic based phones have always provided the necessities to allow consumer access to expendable parts such as batteries or expanding on memory at will. There should be no reason a consumer should have to make a trip to a retail store to rectify something they could do themselves if they desire to or have the capabilty to.

    I also question the use of aluminum on a phone that has the potential to be exposed to high heat. Aluminium is extremely efficient in heat transfer which is why it is used in many application for transfering environmental temps. Ice machine evaporators to make ice cubes and furnace heat exchangers for heating buildings. Aluminum is also attached to some components and used as heat sinks to draw heat away from these components. While setting a phone in direct sunlight or near a fire is not recommended, consumers tend to ignore common sense. With a phone being hermetically sealed in aluminum with no way to breathe, the aluminum will absorb the heat and transfer it the inside of a sealed case. I wonder how many components such as batteries that do not play well with heat, will meet some demise under this duress. At least with plastic phones, the material can expand and contract far easily when not sealed tight.

    Now, just so I make myself clear, I’m not denouncing metal phones as an option. I just feel manufacturers have the ability to make metal phones while still retaining access to key essentials. HTC has this ability just like everyone else to obtain this. However, they choose to follow in the foot steps of Apple. I know two people that experienced issues seperate times, where the batteries failed in the middle of nowhere between business drives. Both had to purchase 12 dollar TracFones to carry on until they arrived at the next city that offered service for their devices. I’ve desireable this before and I will say it again: No high end phone should ever be rendered useless just because of a stupid battery. You may laugh or feel it isn’t necessary to have removable batteries, but just once having a battery fail in the middle of something important and can’t readily replace a battery, provokes the question: “Who’s stupid idea was this?”

    John B.

    • John, I’m not trashing plastic phones; I’m simply sharing commentary from folks that don’t like them. Personally, I own a Samsung Galaxy Nexus and Samsung Galaxy Note 2, so it doesn’t bother me. ;)

      • John B.

        Thanks Kevin,

        Polycarbonate does not bother me as well. I never hold on to my phones more than contract anyways. However, I have had numerous instances where the battery did not last until this time. It is of much thanks that I was able to swap the battery with no down time and move on until upgrade. With power users and gamers such as my nieces and nephews, they get so pissed when their phones die in the middle of a game and have to wait to recharge, yet celebrate the fact that they have no problem with sealed batteries.

        John B.

  5. Much of HTC’s effort in software is directed on the silly Sense skin. HTC is very bad with software upgrades. The CyanogenMod 10.1 (Android 4.2.2) OS on my Desire Z works far better than HTC’s own 2.3.3 did. They make users beg for firmware upgrades and ignore them.

    HTC buyers are tech enthusiasts and being treated badly is bound to not impress.

    Advice to HTC: The Samsung way seems to be building a dream list of features and cramming as much as possible into the phone being designed. Do that. Don’t think you can sell features customers don’t care about while you ignore stuff they want.

  6. Good analysis, Kevin to which I would suggest three additional points — first, HTC lost a lot of credibility with the Thunderbolt (I recall some really frustrated podcasters that might confirm this one). Second, HTC has devoted significant resources to a platform, Windows Phone 8, that has yet to prove itself worthy of that investment in terms of market share. Finally (paralleling your discussion on the Beats purchase), HTC’s sponsorship of a bicycle team had to drain vital resources from its core business and marketing budget.

  7. past htc owner

    I was an early HTC adopter before Samsung gained momentum. A majority of smartphone consumers keep their phone beyond 1 year (due to contract, or cost, or personal taste) – what is most important to me is receiving Android updates.

    Nothing angers me more than hearing my newly purchased Flagship $699 (off contract) device will not receive the next update.

    Lastly, Samsung usually takes a hands-off approach to devs community. That’s to say, Samsung’s bootloaders and Roms (and dev Roms) are easily obtained/unlocked/installed. Many S2 handsets continue to enjoy currently 4.2.2 Jelly Bean release. HTC? Nope.

  8. The “marketing budget” is partially a cop-out: make an awesome phone and it will advertise itself. I really liked HTC phones but what sold me on Samsung was the screen; it looked so much better and more vibrant than the washed out HTC displays available at the time it was really no contest. Holding both phones was like looking 5 years into the past in one hand and 5 into the future in the other.

    Also the Beats partnership was just stupid – to a lot of people “Beats” epitomizes over-priced, under-performing crap. No one wants a Beats logo on their phone; it’s embarrassing.