Why HTC ‘s strategy to not make low end smartphones might backfire.

HTC’s CEO Peter Chou has announced that the company shall not be catering to the budget market any longer. With its cheapest model, the HTC Explorer, priced higher than the INR 7K mark, Chou seems only to be voicing platitudes. Granted there were talks in 2011 of an HTC-ST Ericsson collaboration to produce low-cost chipsets (and low-budget phones), but not much has happened since. In fact, HTC has never been known for budget models, and the CEO has only underlined what has been the company’s policy right since its inception. The announcement, conveyed to the Wall Street Journal, does however carry significant weight in the market’s current context. And the impact seems to weigh heavier on the negative side. Here is an analysis.

From a golden past to a mercurial present

There was a time when HTC was the premium brand in the smartphone market. It was a time when the touchscreen was somewhere between resistive senility and capacitive infancy; when Blackberry had begun to stagnate and consumers were increasingly opting for HTC’s more colourful and feature-laden offerings; and when, at least in the consumer market, owning a smartphone was very much a luxury. As a result, producing high-quality, and consequently high-priced, smartphones made huge business sense, and HTC had well and truly grabbed the wagon’s reins.

The journey of HTC from such a prosperous past to its significantly dimmer present is littered with a number of milestones, the most prominent of which are:

• The arrival of the iPhone: Critics and consumers alike were sceptical, but the iPhone’s launch in 2007 proved to be a watershed moment in phone history. The iPhone redefined the smartphone experience through its highly innovative software and minimalistic yet luxurious build. HTC had competition, and although it was coming from a company with no prior experience in smartphone manufacturing, it was to be one of the major factors in the Taiwanese giant’s slide down the leader board.
• Smartphone influx: While the iPhone promised an experience that bordered on the magical, it wasn’t affordable for many. There were still millions of HTC models being sold, but a second blow to the company came in the form of a more gradual turn of events, wherein a number of companies, with Samsung forming the vanguard, developed low-cost hardware, and hopping onto the Android train, began to sell smartphones armed with high-resolution cameras and refined capacitive screens, all at a pittance compared to Apple’s prize.
• The year of the S2: 2011 belonged to Samsung’s S2, a high-end phone that weighed nearly as much as a tea coaster, and yet boasted of market-pommeling specifications. With this, HTC’s list of headaches was complete. Not only were brands like Huawei and Micromax dominating the budget markets of China and India respectively, markets that HTC couldn’t have touched even if it desired to, Apple and now Samsung had effectively saturated the hitherto HTC-centric higher end of the consumer-demand spectrum.

HTC’s sales were still remarkably high for the major portion of 2011. The company refused to budge from its image of a polished phone maker, and with consumers always looking for variety, HTC phones like Mozart and Desire hogged a fair portion of the market share. Come 2012, however, the company finally came across the inevitable. Apple and Samsung innovated like lightning, and high-priced HTC models slipped into the past in terms of specifications. It seemed that HTC was destined to go the RIM way.

The partial revival and “brand maintenance”

Recent months have seen HTC partially recovering its mounting losses through the One series, which is doing well both in the West and in the Asia-Pacific. The following are a few points of note:

• The One X and the One S are both priced above INR 30,000. The vision of the company is hence as lucid as ever: to make high-quality phones and rely on its brand image to sell them. In effect, a user must feel distinguished with an HTC phone in hand, which used to be the scenario half–a-decade ago.
• It seems to be working better than recent times, with HTC’s profits gradually picking up, going by its statistics in the first and second quarters of the year. This partial revival can be attributed to the significant hardware and software improvements introduced in the One series, as well as more aggressive marketing, especially in the emerging Asian markets.

Whether these measures are enough to take HTC back to the top of the smartphone industry remains to be seen. It seems unlikely, though, as the CEO’s recent words seem to underline certain stubbornness in the company’s attitude, as also a tinge of insensitivity towards the burgeoning budget consumer market.

Chou has been quoted as saying that HTC will never make “cheap, cheap phones”. It has to be said that these words feel more than a trifle myopic. Any enterprise has to be aware of its business environment, and most experts agree that the low-end section of the phone market is set to deliver the highest profits. Sticking to company legacy is a valid argument, but the question is: can HTC really compete in the luxury market with already established giants such as Apple and Samsung who, in their heated rivalry for the global smartphone crown, are constantly outdoing each other and pushing technological boundaries ever further? HTC has recently revamped the prices of most of their mobiles as visible in this price list. Older phones have had massive price cuts. However, for now HTC shall refrain from making phones at sub Rs 10000 rates on launch.

 Conclusion

If HTC wishes to re-join the league of global leaders, and be able to eke out a niche for itself, the One series alone will not be enough. It will have to come out with more variety, and more importantly, a game-changing X-factor that sets its phones apart. Otherwise, HTC’s place may finally have to be with the Huaweis and the Micromaxes.