Chastened HTC turns to cheaper smartphones in search for profit

Chastened HTC turns to cheaper smartphones in search for profit

4:15pm EST

By Michael Gold and Sinead Carew

TAIPEI/NEW YORK (Reuters) – Smarting from growing losses, Taiwanese phone maker HTC Corp says it will expand its range of cheaper products as it fixes off-target marketing for its premium smartphones.

The company that has long prided itself as a purveyor of upscale, feature-loaded products says it needs to sell more mid-tier and affordable smartphones after losing out in 2013. Muscled off-track by fast-growing Chinese rivals like Xiaomi Inc as well as giants like Samsung ElectronicsCo and Apple Inc, HTC is seeking to reverse a two-year sales slump matched by an 80 percent drop in its share price.

“The problem with us last year was we only concentrated on our flagship. We missed a huge chunk of the mid-tier market,” said co-founder and Chairwoman Cher Wang, speaking to Reuters in New York last week alongside Chialin Chang, HTC’s ‎Chief Financial Officer.

Speaking ahead of an HTC earnings guidance presentation expected later on Monday, Chang said HTC willsell products in the $150 to $300 retail price range for both emerging and developed markets, along with high-end phones which can sell for over $600. HTC won’t get into the “very, very low-end market”, Chang said, but will soon unveil a new flagship phone.

“The two cylinders are going to be fired together,” Chang said.

The new strategy marks a need to address problems at a company, 3.8 percent-owned by Wang herself, that just over two years ago supplied one in every 10 smartphones sold around the world. In 2013 its global market share had fallen to just 2 percent, according to Strategy Analytics analyst Neil Mawston, and HTC last month reported its second straight quarter of operating losses.

HTC will need to move quickly in order to convince skeptical shareholders. “Only time will tell, but I’m not optimistic,” said Laura Chen, a Taipei-based analyst at BNP Paribas.

Chen believes the company’s fundamental problem is unattractive, underwhelming products and that this will continue to hold it back in 2014. “They don’t offer anything really new to the market,” said Chen, who has a ‘sell’ rating on HTC shares.

MARKETING MISS

Wang aims to boost smartphone sales this year by improving its marketing, something she said her company “didn’t do well” in 2013. While the flagship HTC One phone it launched last year attracted rave reviews, these didn’t translate to strong sales: HTC needs a “very aggressive campaign” to broaden its market beyond tech-savvy 20 to 30-year-olds, the executives said.

Last year HTC hired Hollywood actor Robert Downey Jr for a series of TV ads to promote its brand in a campaign labeled “Here’s to Change”.

The executives said that higher volumes of cheaper phones should make up for the difference in price with its higher-end phones. “Overall profitability is going to grow,” said Wang.

Along with an improvement in the mid-tier HTC is also hoping for incremental growth in the high-end phone market this year. The executives said invitations will be sent out in about two weeks for an event where it will announce the successor to the HTC One flagship phone.

More affordable phones should fill a gap in HTC’s range. Of the 53 phones for sale on HTC’s China website, only two models cost less than $150 – the highest-growth price bracket in China, according to research firm IDC. Twenty-one are over $500.

“I used to have an HTC, but their prices have gotten too high,” said 30-year-old Beijing resident Liang Lihuan. The bank worker said she recently switched to a phone made by South Korea’s LG Electronics Inc. “The price is simply more reasonable.”

With growth in China shifting to cheaper models, posing problems for heavyweight Apple despite a much-hyped deal with China Mobile [ID:nL2N0L11SK], local smartphone maker Huawei Technology Co Ltd lists eight models under the magic $150 threshold. Xiaomi, whose phones sell for between $130 and $410, said it plans to double its sales this year compared to 2013. [ID:nL3N0KC110]

“I think will be forced to migrate into the mid-tier,” said Richard Ko, an analyst at Taipei-based KGI Securities. “Those products are low-price and high-spec, which is a trend for this year,” said Ko, who has a ‘sell’ rating on HTC shares.

While HTC recalibrates, Wang said the company wouldn’t return to its roots as a contract manufacturer supplying phones for others.

“We’re not even considering that,”‎ she said: The only manufacturing partnerships HTC will consider are ones where its brand features on the phone alongside that of a partner such as a mobile carrier.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: