19 July 2019
HTC continued to incur losses amid stiff competition from  leading smartphone makers. Photo: Bloomberg
HTC continued to incur losses amid stiff competition from leading smartphone makers. Photo: Bloomberg

HTC must make tough decisions to turn business around

Taiwan’s HTC has reported a net loss of NT$9.8 billion (US$334.4 million) in the three months to December last year, the 11th consecutive quarter that the smartphone and virtual reality (VR) maker was swimming in red ink.

The company’s management led by founder Cher Wang should think of a restructuring plan to improve its operations and turn the business around so that it could win back market share and regain the trust of investors, users, suppliers and staff.

It said revenue for March was NT$2.77 billion, up 6.09 percent from previous month, but still down 46 percent from a year ago. The March sales figure could be a positive signal, however, particularly in the smartphone and VR equipment segments.

The company launched a new mid-tier U11 Eyes smartphone in February featuring dual-front camera for selfies. It also unveiled a new VR headset linked to the home PC to bring comprehensive VR experience for both individual and corporate users.

But the sluggish year-on-year sales performance indicated that the company is still yet to find a way to convince customers to stay with the brand, especially in the highly competitive smartphone market.

The past year was particularly horrendous for the company. It recorded a net loss of NT$16.9 billion for 2017, from a deficit of NT$10.5 billion a year earlier. Revenue tumbled 20 percent to NT$62.1 billion. Its cash pile of NT$18.4 billion was down from NT$35.8 billion over the period, although it has yet to book income from the sale of assets to Google.

HTC has been on the restructuring path since the company announced last year the disposal of its ODM business to Google in a US$1.1 billion deal. The ODM business, which focused on designing Google’s Pixel handsets in the past two years, demonstrated HTC’s strength in product research and development. In fact, Google agreed to acquire HTC assets to support its own device business, a thumbs up to the Taiwanese company’s superb technological capability.

However, as far as its core business is concerned, HTC has been struggling to regain its golden era a decade ago, when it first partnered with Google to produce the first Android smartphone, catapulting the company to become one of the top five phone makers in the world in the early 2010s.

But intense competition from South Korean phone makers like Samsung and LG Electronics had played havoc with its business. The company’s lack of the impressive designs and new features found in its rivals’ products prompted its customers to switch loyalties.

Currently, HTC’s share of the global smartphone market is likely below 1 percent as its name has fallen off the top rankings. However, the company is still relying on its own production facility in Taiwan to produce its own products. That could be one of the reasons why HTC has failed to turn around its business: staff costs for low utilization production facilities is eating into the company’s income.

Management should cease ownership of these production facilities and outsource the manufacturing process to electronic manufacturing service providers, and focus on the nurturing of core employees for research and development.

HTC said it has undertaken a strategic review of the business to optimize teams and processes, and tighten management and systems for greater coordination of the smartphone and virtual reality businesses, as well as gain greater leverage of its extensive expertise across the group.

As a technology firm, HTC has no more time to lose. Competition in the smartphone market is brutal. Many mobile phone brands vanished after failing to gain market share.

Management must make a decision to focus on a single business. If Cher Wang wants to bet her company’s future on VR, she should have the courage to let go of the mobile phone unit, or at least streamline the business by selling production lines and transforming it into a niche brand.

Otherwise, HTC will inevitably be part of the ongoing consolidation in the smartphone sector: it could either take over other brands to boost its scale or allow itself to be merged with others.

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EJ Insight writer

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