A cautionary tale: What can we learn from HTC’s current troubles?

HTC has been around since 1997.

Watching them evolve has easily been one of the most exciting things I’ve ever seen as a fan of the mobile industry. For those not familiar with HTC’s history, they started out making mobile devices for other companies. Back then we called such a company an “ODM”, which stands for original design manufacturer. HTC didn’t have a brand in the 90s, but that didn’t matter since they would happily take money from just about anyone and then slap whatever logo they were presented with on the front of their devices.

Fast forward a decade and the launch of TouchFLO 3D was when HTC began realizing that they had to step up their game and stop letting others take responsibility for their work. TouchFLO 3D was a Windows Mobile 6.1 skin that premiered on HTC’s Touch Diamond smartphones. Those handsets were the first phones to actually be branded as HTC devices. Remember, this was back in 2008, the same year that the T-Mobile G1, the world’s first Android phone, also hit store shelves.

One year later, the HTC Hero was unveiled, otherwise known as the first phone with Sense UI. HTC basically took what they learned with Sense, ported it over to Android, and made good use of all the new enthusiasm surrounding Google’s up and coming mobile operating system.

So let’s recap, because it’s important to stress the transitions. HTC spent a little over a decade making phones for other people. They bought components, built assembly lines, manufactured devices, and the only customization work they had to do was slap a Compaq or Verizon logo on the front of their hardware.

Then, possibly inspired by Apple, we’ll never really know, HTC decided to put their brand front and center. Their key differentiator would be the software skin that they installed on their devices. The problem was that they bet on the wrong platform in 2008. One year later, with Android starting to pick up steam, HTC changed the horse they were riding and practically started printing money.

Sounds like a great story, right? So why is it then that HTC’s profits are down nearly 80% and revenue is roughly half what it was compared to the same time a year ago?

To understand that you have to see why today’s major players, Apple and Samsung, are healthy. They might make devices that look absolutely nothing alike, but both companies are organized with the same vertically integrated mentality.

Starting with Apple, here’s how they attack the market: All that money they made from the iPod back at the turn of the century, they give that to factories so that they can buy equipment and increase their output. Now everything that factory makes goes straight to Apple for the next few months. Apple also designs their own software, so they don’t have to license it from anyone. And finally, they use cheap Chinese labor.

Now Samsung’s turn: Samsung is to hardware what Apple is to software. Samsung makes their own processors, their own RAM chips, storage chips, displays, camera sensors, basically everything one would need to make a phone. Those various components then get assembled in a Samsung factory. Before the device is sealed for delivery, it gets flashed with software that was written by another company, except for a handful of tweaks that were made by Samsung themselves.

Circling back to HTC, today I like to think of them as a drooling child playing with LEGO blocks. They take chips designed by Qualcomm that were manufactured by TSMC, software that was developed at Google, screens from Sony or Samsung, camera sensors from OmniVision, and then slap all of those together. Each supplier takes a small cut, leaving HTC with practically nothing.

To truly understand the current state of HTC all one needs to do is to have a brief look at the One X. It’s gorgeous, it’s fast, it’s a great device, but it’s nothing more than the result of a couple of engineers putting pieces together instead of doing the “new” hard work of creating cutting edge technology (Samsung) or writing highly compelling software (Apple).

When’s HTC going to grow up? I honestly wish I knew.

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  • AllanVS

    HTC Has had a ‘brand name’ since 2007, and the launch of the HTC Elf/Vogue/Touch. You need to get your facts straight. Also, TouchFlo 2D was available then too.

  • casualsuede

    As long as we are talking about “facts”, when the author said HTC was backing the wrong OS, the truth is that HTC backs alot of OS’. Before the G1, the only readily available in the the US was Windows. They were the first to back Android. I don’t know how that constitutes “Betting on the wrong platform”. Also, to say that HTC just slaps together components is not really accurate, nor is it accurate to say that Samsung does it all on their own. Samsung may have their own screens, processors (which they use on certain models – They still use QCom and ST-Ericsson for alot of their phones) and DRAM, but most of the other components, whether from Broadcom or other vendors are still from other companies. OS is from Google, most of their apps are from third party vendors (btw: Samsung’s Media Hub was/is run by Saffron Digital, owned by HTC). The truth is that 90% of the experience you get from an HTC One X or the SS Galaxy S3 is the same, there are some differences on the OS (Touchwiz vs Sense) or some hardware/software component (Beats audio vs S-Beam), but they are not that far apart from a useability standpoint. Where Samsung wins is in investment level and marketing. Samsung has the power to take money from cash flow rich departments (component divisions for example) and use their funds to drive marketing and pricing down. HTC is a one trick pony (all they makeare smartphones) and they leave and breath from their product line. I think that HTC has some problems (non-removeable battery and no SD card slots being a couple) on their own but the truth is that they do not have the bandwidth to spend like Samsung. or Apple. And also, unlike Sony, LG, Motorola, RIM and Nokia,,,,,HTC has yet to lose money. They make less, but they aren’t losing.

  • HTC user

    I believe HTC sort of failed with the One X because they forgot a very important point regarding their customers: they don’t want an iphone! and they know why!
    because they want a removable battery! because they want an SD!
    when HTC removed these from the One X they shot themselves in the leg. I know I didn’t go for the One x exactly because of these two reasons.
    i am not even getting into the point where HTC just releases their software updates ages late (or even don’t release them at all, even after they promise to do so… as in the DHD ICS update).
    i love HTC. and if they find their old way again, they would win me back !

  • Rex_D

    Well said!

  • Rex_D

    Agree’d. That has been the thing keeping me from buying an HTC or recommending them to friends… the lack of removable batter and SD slot. They provided one on the Sprint version, the Evo 4g LTE… don’t know why they didn’t on the One X.

  • http://www.facebook.com/people/Atty-Halmágyi/100001770630008 Atty Halmágyi

    I am amazed to see the author, Stefan Constantinescu here. He was at Intomobile, what happened? Anyway, I hope HTC will going up, and they will start making their own Chip, camera, Ram and so on.

  • Gorf959

    I don’t think the One line’s relative lack of success has anything to do with lack of a micro SD card slot or removable battery, which are things that only a small percentage of tech geeks such as ourselves care about. The main reason I think Samsung has been so successful where HTC hasn’t, at least in the United States, has been in the way they’ve been able to release the Galaxy S at close to the same time on all four major carriers for three generations in a row and with each generation they’ve released a very competent product. To an uninformed consumer if their friend on another carrier buys a Galaxy S III and raves about how awesome of a phone it is, when they look at what phone to get when it’s time to upgrade, even if they’re on a different carrier they can get the same phone which they already know is good. If their friend gets an HTC One X and raves about it, when that person goes to get a new phone they won’t have the option of getting the same phone unless they’re also with AT&T. The closest option will be the Evo 4G LTE if they’re on Sprint, the Droid Incredible 4G LTE if they’re on Verizon, or the One S if they’re on T-Mobile, all of which look completely different from one another. I’m not sure that this has anything to do with why Samsung is more popular in Europe and Asia where carriers don’t have as much control over manufacturers, but another thing to consider is if they’re upgrading from a previous HTC phone, all the name changes from generation to generation makes it unclear to an avg. consumer which of these phones is top tier and which are lower end, Samsung makes this easier because if you get the newest version of the Galaxy S you’ll know you’re getting a good phone.

  • HTC User

    I worked at HTC and shortly after joining I realized that the company’s own employees don’t believe in their products. I was the only employee I knew of that actually purchased an HTC phone. Most employees, including managers, used iPhones as their primary phones. Most of the hardcore Android people owned Samsung phones. One or two employees did use an HTC phone but it was because it was loaned to them by the company.