A customer looks at HTC handsets in a mall in Shanghai, China, on Wednesday, July 06, 2011. Photographer: Kevin Lee/Bloomberg News.XXXX in Beijing, China, on Wednesday, July 6, 2011. HTC Corp., Asia's second-largest smartphone maker, posted sales that beat analysts' estimates for a third quarter and said growth will continue as demand in the U.S. and Asia remain strong. Photographer: Kevin Lee/Bloomberg

For almost a year, as Google prepared the Android smartphone operating system for launch, it relied on the help of dozens of HTC employees despatched to its California headquarters to work on the secretive project.

The Taiwanese company produced the prototypes that Google’s engineers used to hone Android, as well as the first commercially available phone running the system, launched in 2008.

But while Android has become so dominant that it is now the subject of a European Commission antitrust investigation— with 79 per cent of the smartphone market in the first quarter, according to Gartner — the manufacturer that brought it to market has suffered a sharply contrasting fate.

On Thursday HTC said it would cut 15 per cent of its workforce, less than a week after warning its net loss in the third quarter would be five times larger than the market had anticipated.

The company, which in mid-2011 accounted for more than a tenth of all smartphones sold, has watched its market share shrink below 2 per cent as it struggles to stand among now dozens of Android-focused rivals from China and elsewhere.

Its market capitalisation has fallen 95 per cent from its peak in 2011, this week dropping below HTC’s NT$47.6bn net cash balance, implying that shareholders value the company’s actual operations at zero.

The company’s warning of continuing heavy losses has exacerbated analysts’ sense of an inexorable decline in HTC’s core smartphone operation, even as it predicts a boost from a “trendy” new phone later this year.

“HTC has been doing very poorly in sales and marketing, and general management,” says Jeff Pu, an analyst at Yuanta Securities. “I think it has no chance to make a comeback in smartphones.”

The company’s woes stem from a feature core to Android, even as HTC enjoyed its exclusive advance access: it was to be made available for free to any manufacturer wishing to use it.

The full implications of that open-source model took some time to hit HTC. It was the leading Android-based smartphone maker until 2011 as rivals including Samsung Electronics, LG Electronics and Motorola dithered in crafting a strategy for the developing industry. Now-sidelined Nokia and BlackBerry still loomed large, while China’s plethora of producers had yet to emerge.

But in 2011 Samsung’s belated but massive assault on the market bore fruit, with a raft of Android-based devices making it the year’s biggest smartphone producer, and it grew rapidly in the two years that followed.

Samsung, with huge revenue from its other electronics businesses, could count on hefty promotional resources: it spent $14bn on marketing in 2013, compared with HTC’s $587m.

Undaunted, HTC persisted in focusing on expensive, premium phones as it tried to compete with Apple and Samsung — without making significant changes to a design platform that initially won favourable critical reviews.

Chart: Smartphone unit shipments

“They thought the product would speak for itself,” says Kylie Huang, an analyst at Daiwa Capital Markets. “But consumers get tired of a model that looks the same.”

Unable to match the brand appeal of Apple and Samsung, HTC soon found itself encroached on by fast-growing Asian peers— notably Chinese rivals such as Huawei— offering phones with competitive technical specifications at bargain prices.

HTC has been left with a damaging “mismatch” of phones that are costly to produce but cannot command high prices, says Wang Wanli, an analyst at CIMB.

The Taiwanese company’s decline, analysts say, illustrates the danger of “commoditisation” facing Android-based smartphone manufacturers.

Chart: Smartphone market share 2015

Rapid technological advance has eroded the available space to impress consumers with improvements in processing speed or screen quality. And while Apple’s unmatched brand power ensures it high prices and customer loyalty, Android-based players struggle to convey a unique experience to users, Mr Wang says.

HTC in March replaced veteran chief executive Peter Chou with co-founder Cher Wang, whose latest “realignment” programme is aimed at cutting operating expenditure by 35 per cent. In addition to plans for a new high-end device this year and fewer lower-priced offerings, the company is also making a renewed push into virtual reality headsets.

But analysts at Nomura warn that while cost cuts should help HTC reduce short-term losses, virtual reality headsets and other connected devices will only make a meaningful financial contribution from next year. In the meantime, its smartphone business shows no sign of returning to profit.

“If you look back at Nokia, Motorola, BlackBerry — you can see this is a bloody industry,” says Mr Wang. “If you cannot win consumers’ hearts at a certain point in time, you will just be squeezed out.”

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