HTC unravels: 5 key blunders

HTC said its monthly sales will stink (again). How did a former smartphone darling get whacked so hard? Here are five reasons.
Written by Larry Dignan, Contributor

In what's becoming a monthly ritual HTC told investors that its sales will be lower than expected. The February version of HTC's ongoing debacle saw monthly sales fall 44 percent from a year ago to the lowest level since February 2010.

At this point, HTC's best hope is becoming obvious---the company needs to go back to being a contract manufacturer and designer for other smartphone makers. HTC got its start that way, performed well and then rode Android to be a player and ultimately develop a strong brand. The problem is that HTC got Samsung-ed, couldn't match scale with larger rivals and fell behind the design curve.

HTC's latest device, the One, has received strong reviews but can't hang with the smartphone juggernauts of Apple's iPhone 5 and Samsung's Galaxy line. In other words, HTC is being squeezed from above by Apple and Samsung and below by rivals such as Huawei, ZTE and others looking to gain share.

Also: HTC revenues plunge by half, hitting three-year low | HTC predicts further slide in sales in Q1 2013, plans cheaper phones | HTC: Our competitors were 'too strong' last year

If you take a walk down HTC's memory lane you could say that the smartphone maker peaked in 2010 with its 4G Android devices and then officially jumped the shark in mid-2011. Here's a look at five key HTC miscues over the last 18 months or so brought to you by hindsight 20/20.

Feb. 2011: Samsung launches the Galaxy S II. HTC fails to respond. At the 2011 Mobile World Congress, Samsung launched the Galaxy S II, a device that was slim and sported a large screen that seemed a bit odd at the time, but caught on. HTC had no answer for the thin profile of the Galaxy S II or its larger screen for months.



Feb. 2011: As Samsung was launching its uber phone, HTC was unveiling its first tablet, the Flyer. HTC added a few services and exuded "the iconic style and build quality HTC is known for." Don't remember the Flyer? Me neither. HTC has largely abandoned Flyer sales in the U.S. and doesn't actively sell the tablet

HTC had big brand ambitions that bordered on delusional.

Aug. 2011: HTC teams with Dr. Dre's Beats Electronics company. HTC became a partner and investor in Beats for $300 million. The goal was to bring high-performance sound to HTC devices and become a huge brand. At the time, I called HTC's Beats deal an expensive case of Apple envy. HTC argument that its brand could be on par with Tiffany is still one of the more comical investor presentation slides ever.

July 2011: HTC buys the outstanding shares of S3 Graphics Co. for $300 million to get patent protection from Apple. Of course, HTC isn't large enough to warrant much Android patent lawsuit attention these days. Apple and HTC settled a lawsuit and entered a 10-year licensing agreement in November.

April 2012: HTC launches its comeback smartphone line dubbed One. The devices looked strong, garnered good reviews and had unique features. The problem? HTC lost its brand mojo and now has very short windows of opportunity between Apple's iPhone and Samsung's Galaxy launches. The innovation cadence, as well as HTC's revenue, is off. Also HTC made a critical strategic error by using tailor-made components for the HTC One. HTC had a limited window to make the One a hit and then was hit by supply constraints.

Morgan Stanley analyst Jasmine Lu elaborates:

Innovation becomes a risky strategy without scale: Weak Feb sales imply 1Q revenues might hit the low bar owing to weaker than anticipated sell-in strength restrained by critical component supply (i.e. actuator for its new “ultrapixel” cameras”) on our checks. This affirms our view that it is a bold move for HTC to use tailor-made components for its new HTC One, causing low yield at the initial stage of ramp up.

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