Can HTC Maintain Its Leading Position in the Smartphone Market?

21 Feb

For the past one and a half years, HTC has been the main supplier of Android smartphones, but its leading position might not be this definite anymore.

More than a year ago, HTC, a small-scale smartphone manufacturer that showed promise, was still an underdog in the smartphone industry. In 2009, HTC sold over 11 million mobile phones, which was only a fraction of the market leader Nokia’s sales numbers and half of iPhone’s, but the actual significance of HTC’s sales numbers was much more than they presented on the surface: HTC prided itself on being the first manufacturer to give Android a shot.

HTC sold 25 million cell phones in 2010, generating sales revenues of NT$ 275 billion dollars with a growth rate of 90% and net annual income (before taxes) of NT$ 44.5 billion dollars with a 76% growth rate, enabling it to double its capacity within merely one and a half years. HTC outperformed others companies and became a leading competitor in mobile industry, which served as an eloquent interpretation of their commercial slogan: quietly brilliant. Such an impressive performance forced competitors, such as Nokia and LG, to undergo major restructuring in order to keep up with the market trend.

For HTC, 2010 was a fruitful year: its stock price was up 158%. HTC’s commercial strategy is to build a brand image of being the leader among smartphone manufacturers in consumers’ eyes. Peter Chou, CEO of HTC, stated: “2010 was a turning point for HTC, because we went from a small-scale smartphone manufacturer to a one of the most major manufacturers in the world. The pace of expansion was way beyond our expectations.” It seems all signs suggest that in 2011, HTC may still be able to deliver the same impressive performance as last year.

While Google’s Android operating system takes the smartphone world by storm, HTC is also one of the main supporters of Microsoft’s operating system – Windows Phone 7.

HTC expects its sales revenues to reach NT$ 94 billion dollars, up 46%, and its cell phone sales numbers to reach 8.5 millions, up 157%, as compared to last year. “This is merely the beginning of this smartphone fever, and we see no subsidence in sight in upcoming year. I expect a double-digit growth in the global sales,” said Peter Chou.

Despite of Peter Chou’s optimism about HTC’s outlook in 2011, analysts and investors remain skeptical about HTC’s capability of maintaining its leading position in the smartphone market.
Jasmine Ku, Morgan Stanley analyst, indicated that, this month, there will be a  downgrade in HTC’s equal weight, because she believed that the market has underestimated the possibility of component supplies shortage. Moreover, the fierce war in high-end smartphone market and decreased subsidy from telecommunications companies will inevitably intensify the competition. HTC has been the main supplier of Android cell phones for over one and a half years, but now its leading position in the smartphone industry does not seem so secure anymore.

With over 10 million Galaxy S smartphones sold in the second half of 2010, Samsung defeated HTC regarding Android smartphone sales numbers, which resulted in Google turning to Samsung for manufacturing their second generation Google Nexus smartphone. Due to the fact that other manufacturers, such as Motorola and LG, have been enhancing their products in terms of design and functions, currently, the only difference that distinguishes HTC from other companies is sales numbers.

At a recent convention, Andy Rubin, Google’s vice president of engineering, chose Motorola’s tablet PC out of all the options while presenting Android tablet operating system. All signs indicate that HTC is losing its edge in Android smartphone industry.

However, not all odds are against HTC. According to CK Cheng, analyst of CLSA Asia-Pacific Markets, presently Android smartphone market is expanding faster than the general smartphone market. Therefore, even though HTC’s Android smartphone market share is being eaten away by other Android manufacturers, CH Cheng still believes this smartphone fever will allow HTC to maintain an above-average growth rate in the smartphone industry.

On account of the fact that smartphone penetration in Europe and the U.S. is expected to reach 70% to 80% in next year, an emerging problem is coming HTC’s way. CK Cheng believes that potential of emerging markets will stimulate HTC to develop and adjust itself, but due to HTC’s major focus on the high-end product market, it is most likely going to be an arduous route for HTC to make a breakthrough into the emerging markets.

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