HTC: When good products aren't enough

HTC: When good products aren't enough

Summary: HTC showed some stability in the second quarter and touted its latest One device. The problem is that HTC may be merely a one-quarter wonder.

SHARE:
14

HTC reported a small second quarter profit, appears to have expenses in check and touted how its One (M8) smartphone "continues to impress the market." However, there's a chorus of tech watchers and analysts saying HTC's products won't translate into stability.

First, the results. HTC reversed its three-quarter sales slide, but couldn't show growth compared to a year ago. Meanwhile, HTC's second quarter profit more than doubled what it put up a year ago.

These charts tell the tale:

htcq214a
htcq214b

As for the outlook, HTC projected third-quarter revenue to be between NT$42 billion to NT$47 billion with wide earnings of NT$0.05 to NT$0.69. In other words, HTC expects it will be profitable, but has no clue how well it'll do.

CNET: HTC One M8 Harman Kardon Edition review

HTC One Mini 2 review

The reason: HTC moved a lot of inventory as the reception to the M8 has been positive. Now HTC needs actual sell-through to consumers ahead of Apple's iPhone 6 and new devices from Samsung, which needs a do-over following its Galaxy S5 launch.

HTC CEO Peter Chou said the second quarter was "a positive step that is the result of having focused on delivering the best possible smartphone to the world."

One step may not account for much though. In the best case scenario, HTC's third quarter will get close to flat compared to a year ago.

The concern: HTC's recovery is simply a one-quarter wonder. Daiwa Capital Markets analyst Kylie Huang said:

The disappointing revenue guidance echoes our concerns HTC’s revenue strength in 2Q14 could be a one-quarter wonder due to initial sell-in of new models. We expect sequential revenue and earnings declines from 3Q14 due to stiffer competition from Apple and Samsung Electronics. According our recent supply chain research, the sell-through of HTC’s flagship model, HTC One (M8), is worse than our prior expectation and HTC has started scaling back its component orders from June.

Huang's argument is that HTC has good products, but it's not enough to compete with the scale of Apple and Samsung and a bevy of rivals from China on the low-end of the market.

That take was echoed by other analysts such as KGI analyst Richard Ko.

Where does HTC go from here? It must be tough to be Chou. HTC delivered a strong premium smartphone, but is still at the mercy of Samsung. Should Samsung stumble, HTC has a shot to be a key Android smartphone maker, but still faces competition from vendors such as Lenovo, LG, ZTE and Xiaomi, which is now the No. 5 smartphone maker.

HTC doesn't make the smartphone shipment cut on a global scale, according to Strategy Analytics.

strategy analytics data

Bottom line: HTC's second quarter was a start, but the company will need to deliver on the product and financial fronts in the months ahead just to show it's stable.

Topics: Mobility, HTC, Smartphones

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Talkback

14 comments
Log in or register to join the discussion
  • Total Android smartphone profits on the decline

    Some people pointed to HTC's recent profitable quarter as evidence that profits among Android smartphone manufacturers are evening out. That is not true. Total profits are shrinking.

    Believe it or not, what has kept the PC ecosystem afloat over the decades have been the price of Windows licensing. It preserved value. Windows licensing also erected a barrier to entry, without which, blistering competition would ensue, leaving virtually no OEM with profits. Before you enter a race, you should look towards the finish line to see if you can make it. The economic fundamentals of the Android ecosystem are simply not sound, and players really should have examined this before entering.

    I have to give Kudos to Apple. It seems to singularly have the discipline of not getting caught up on these tech euphorias, and prudently stays true to sound economic fundamentals, when it introduces new products.
    P. Douglas
    • Apple and pears

      Apple cannot be directly compared to HTC or any other phone maker. Apple have a loyal following in yhe 10s of millions who will go and buy yhe next iteration without even seeing or touching it. Few others have that type of following and,as such, cannot be compared with each other.
      Rimmsy
      • but Apple got there for a reason and direct comparisons are appropriate.

        Apple got those legions of fans by delivering defining products that people loved. HTC could have done the same if they produced and marketed better, but they didn't.

        While I think HTC and others make better phones than Apple, firing out tons of models and orphaning those phones within a few months is not going to create legions of loyal followers.

        The short of it is that HTC and other Android makers have not created legions of blind faithful fans, because collectively they have created a bit of a hot steaming mess of Android.
        Emacho
        • Umm no...

          They were sold a bill of goods by the biggest conman in history. He peddled phones that were significantly behind their competitors feature sets in the OS and refused to allow many changes that most of us wanted.

          The only reason I consider the product any good now is because it is finally getting the features most of us wanted from Android.

          You know things like Gesture Typing, 3rd Party Keyboards, Apps that can talk to each other (not just Apple's apps), a bigger screen, and a significant battery upgrade that will allow people to run 3rd party apps on their phone without it dying in less than 8 hours.

          I laugh every time I see an iPhone tethered to a PC or Wall outlet because their phones won't make it through the day with Facebook installed... Then I get home and have anywhere from 60 to 80% battery life remaining on my LG G2.
          slickjim
          • Or

            Every time a new iPhone is released ZDNet has to run their, how to get your iPhone battery to last longer articles.
            slickjim
    • I told you before

      You're not being accurate and you are comparing different things - HTC, Samsung, LG, ... are not the Microsofts of android, they are the HPs, Acers, Asus, ... in the windows ecosystem. Are you sure OEMs are making more money from windows? - I didn't checked, but I think it should way way lower.
      Recent numbers indicate that android is 85% worldwide, iOS, WP and even other smaller players are losing share.
      It's true that Apple is keeping their healthy profit margins, like they do with pcs.
      AleMartin
    • That's not the problem

      Back when HTC had the EVO and the Incredible Touchwiz wasn't bad, it was actually very good, stable, and just enough like stock Android not to offend.

      These days, Touchwiz has become horrific and even products like Google Now seem like some type of 3rd arm like growth on the back of that Pig and HTC just doesn't get it.

      Beats wasn't the problem, the EQ tech in that was actually very good and I haven't had a smartphone that sounded as good as the Rezound since but, they ditched that too.

      Truth is, it isn't the phone's build quality as most people like that part about HTC and it isn't Android... It is 100% Touchwiz with poor design and decisions that have turned most of us off of their products.

      That's another thing, their tablet with the Pen was great for its time but, HTC priced it out of the market and never launched a sequel... Basically bad decisions all around are why they're where they are now.
      slickjim
      • Casualsuede

        Touchwiz is Samsung's not HTC. But I agree, Touchwiz stinks. HTC's Sense is 1000x better, even better than iOS in my opinion.
        casualsuede
  • Try giving them a chance

    The tech arena sometime reminds me of fantasy football. It's easy to draft Peyton Manning or tom Brady in the first round, a bit harder to find a QB in the later rounds who will be better overall for your team.

    I just acquired an HTC One M8, which I chose over the Samsung Galaxy S5. It would have been nice to have the S5's fingerprint reader and heart rate monitor. But reviews by actual owners pointed me to the HTC. Among the top reasons: The S5 has more features than most people can learn in a lifetime. I'm not a geek. I work in IT, and prefer to use my spare time for things I enjoy, not spending all of my waking hours playing with my phone. Also, bloatware was cited as a performance drag.

    The One M8 is mostly vanilla Android. So yes, had to download a few apps that other vendors would have included. But it is easy to use, blindingly fast, and has fantastic battery life.

    One thing we have all learned over the years is that competition improves the breed. More choices mean vendors that won't get fat and lazy. Reviewers should spend a bit of time on not just the high flyers, and we'll all be better off because of it.
    spdblp
    • I Love MY HTC 4G LTE

      Ever since my HTC touchpro 2 I became a fan. And for me,I'm running a little behind, but with jellybeen 4.1.1 update I received a few months ago,it just gets better. From what I read,they are still looking at updating to 4.3 , even if they don't,I'm more than satisfied.
      I bought a Samsung Galaxy S4 for mom inlaw,and found it not very intuitive,even in easy mode. My EVO took me a few hours,and it was like I had been using it for years.
      My next phone will definitely be HTC and before you get your next phone,try out some others first,read reviews, because you might be pleasantly surprised.
      oneeyecarpenter
  • Was my all time favorite phone until

    LG G2. G3 may even better. The whole phone industry is about refinements now. Good to see HTC finally making money.
    mike4401
  • Love HTC products

    But it's an extremely competitive market. In which case, good products may indeed not be enough. Sony, Motorola, Blackberry and many others are in the same boat. Mostly good for consumers, though.
    krisoccer
  • "Others"

    Why does the WINDOWS phone always wind up in the "Others" category?
    lloydkuhnle@...
  • Biggest problem

    at HTC it's they only make smartphones, while from Samsung and LG to Sony there are many other revenue streams. HTC should just keep making the very same quality One and Desire phones but try to invest in othet gadgets as well.
    Also, it might be an idea to either push Google Services and content or make some kind of deal with companies as Spotify or Deezer to create some shared revenue economy.
    sgamao