Is HTC in Serious Trouble?

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Every market that experiences rapid growth goes through the same pattern: a rush of vendors vying for a piece of the pie, followed by consolidation. America at one time had more than 100 auto makers, now there are three. There used to be dozens of PC vendors; America is now down to two.

So it will inevitably go with the smartphone market. Even with the relatively rapid upgrade cycle of an average of 18 months — far faster than the four or five years people hold on to their PCs — it’s inevitable a few players will fall to the wayside.

HTC Jason MackenzieA company in a whole lot of danger of ending up a roadside casualty is HTC, the Taiwanese smartphone maker that makes only smartphones and nothing else, which means it has nothing else on which to fall back should the market get tough.

“Nokia has a huge business selling feature phones. Sony has products across the board and a very profitable insurance business in Japan most people don’t know about. Some of the Chinese handset makers are parts of giant conglomerates like Huawei,” said Avi Greengart, research director for consumer devices at Current Analysis. “HTC is all in on smartphones. So HTC is fairly exposed,”

That all-in bet is a risky one and HTC has been dealt a very bad hand lately. Its big bet is the HTC One phone, a sleek, beautiful Android phone (and well-reviewed here) with a custom overlay of apps and some impressive hardware specs. Unfortunately, component problems seem to be the source of considerable duress.

First, The Motley Fool reports that HTC can’t get camera parts from suppliers STMicroelectronics and OmniVision because they no longer consider HTC a “tier one” manufacturer, so it doesn’t get priority on supply.

HTC OneThen there is a lawsuit in Europe involving Nokia. Earlier this month, a court in Holland imposed a preliminary injunction preventing STMicroelectronics from selling a specific pair of high-amplitude microphones to HTC for use in the One. The year-long injunction came as a result of the discovery that the One’s microphones are also used in Nokia’s Lumia 720, which was supposed to have been an exclusive deal. This is the last thing HTC needs, given that the phone’s launch was delayed due to inventory shortages.

In response, HTC issued a statement that said “HTC is disappointed in the decision. We are considering whether it will have any impact on our business and we will explore alternative solutions immediately.”

Then there was the HTC First, which came from a partnership with Facebook. It was supposed to be “the Facebook Phone,” but in reality, the device is a mid-range phone and the Facebook Home software is available for download in Google Play for a select number of devices.

On top of it all, HTC is virtually a non-presence. If you remember its “Quietly Brilliant” ad motto, you are one of the few. It was supposed to ditch that slogan in favor of something more aggressive, but it hasn’t come up with anything new. Meanwhile, Samsung is running rings around HTC and every other Android phone maker.

HTC LogoThe smartphone market is a hypercompetitive market and a market that has become, to a large extent, a duopoly between Apple and Google, or Apple and Samsung, said Greengart. That makes it difficult for independent companies like HTC to compete effectively because of the sheer size of the marketing budget for a company like Samsung.

“It’s difficult to be someone other than Apple or Samsung. HTC is barely making money. At least they aren’t losing money but that’s not good enough. As the market grows, you want to grow with it,” he said.

Greengart declined to comment on whether the One problems would sink the company, instead focusing on what the company needs to do. “They have never properly introduced the brand to mainstream consumers. The ‘Quietly Brilliant’ campaign was run at full blast for a month or two and that’s not enough to make an impact,” he said. “Plus, that was two years ago. At the time, a lot of products didn’t have the HTC name on them. So HTC needs a major name introduction.”

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