HTC reported its fourth quarter earnings on Monday, revealing a decline in revenue and profits over the fourth quarter of last year. The company expects its lackluster trend to continue into the first quarter of this year, and said that it plans to focus on making the best smartphones, while also creating a “compelling mid-range portfolio.” That could be a dangerous move if HTC isn’t careful – the mid-range market is crowded, and there are new trends that HTC so far hasn’t adopted.
First, we have to consider the competition. Samsung has been owning the smartphone market as a whole recently, and has a huge array of entry-level and mid-range smartphones. There are so many, in fact, that it’s almost hard to keep track of all of the different SKUs the company releases around the world. Samsung has also helped create its own success through aggressive marketing strategies, and it has a lot more money to spend than HTC does.
Samsung will likely continue to be HTC’s top competitor – the firm shipped a record number of smartphones last quarter and a stunning 319.9 million units in all of 2013. That’s not even taking into considering Apple’s own intentions to try to enter into the mid-range market with new handsets, though so far the iPhone 5c has failed to meet the company’s expectations. In China, HTC faces Samsung, Huawei, ZTE and other vendors that have already succeeded in the low and mid-range markets. What will HTC do that can change that? There are other reasons HTC needs to be cautious.
Lenovo recently acquired Motorola Mobility, and one of the driving factors was its desire to enter the U.S. smartphone market. With Motorola, Lenovo now has partnerships with major U.S. carriers and a brand name consumers recognize. The company is bullish, too, and has its eyes set on beating out Samsung and Apple in the coming years. Can HTC compete with yet another company that’s going to go all-out to attract as many U.S. consumers as possible? We don’t know that answer yet. Lenovo will also spread its wings into other markets, such as Latin America, and will no doubt be just as aggressive in Europe and China, especially as it tries to make the deal profitable and worthwhile.
HTC hasn’t really adopted to the budget unlocked handset market the way others have. Yes, you can buy older Desire-branded phones at a discount, but it hasn’t really released new phones at low off-contract prices in developed markets that offer any compelling reason to choose HTC over another smartphone. Chinese vendors have been doing it for a while, and during CES we saw new devices from ASUS, Huawei and other firms that offer compelling specs at affordable price points all under $300 without a contract. These aren’t just watered-down handsets, they’re devices with 5-inch and 6-inch displays, like the ZenFone 5 and ZenFone 6, and even tablet/phone hybrids like the PadFone mini. My point is that the mid-range market isn’t just about being low-end low-cost watered-down versions of flagship products, it’s now a market of compelling phones.
In the U.S. last year, Motorola introduced the Moto G for just $179, though you can pick it up on carriers for $99 without a contract, too. I admit it’s a low-end Moto X, but it has its own attractions: swappable covers, Android 4.4 KitKat out-of-the-box and a first-class user experience. HTC hasn’t recently paid a lot of attention to this market, though I wonder if that might be a better strategy.
Perhaps it will, and perhaps that’s what HTC meant this morning when it said it will put a renewed focus on “mid-range” handsets. That’s only an assumption, though, since HTC hasn’t so far tried to corner that market. Instead of releasing new Desire smartphones – I think it’s time to put that name to rest – HTC could try to follow ASUS’ path by creating new, compelling devices with desirable form factors and colors. Devices that attract consumers from all markets instead of just who can’t afford a more expensive smartphone.
In other words, HTC might do well to follow Motorola’s tracks in creating an off-contract low-cost device that’s sold around the world, not just in a few markets. In the U.S., that device could be an attractive secondary smartphone for travelers. It could also sell well on carriers who are beefing up new off-contract portfolios, and it may help the company compete better in emerging markets. The focus of course needs to be on creating a device people actually want not just one with a low price tag that consumers simply settle with.
The good news? HTC has the people and the know-how to get it done. It knows how to make great handsets as we’ve seen over the past several years. The software engineers are super talented, too, and I’m a big fan of HTC Sense and the customization the team adds to its Android overlay. Better yet, HTC knows how to make distinguishing handsets with options like Highlights, Zoe, Ultrapixel cameras and BoomSound speakers all making a debut in the HTC One. This isn’t a matter of HTC not understanding how to create a mid-range handset, it’s just a matter of the company doing it right.
HTC knows its struggles are going to continue at least through the next quarter, when it expects yet another fall off in revenue and a loss for the quarter. We’ll need to see it create a new space for itself in the mid-range market, and competing in that arena is going to be a lot harder than it once was.