Bloomberg News

HTC’s Anti-Apple Strategy Wins in U.S. Smartphone Market: Tech

November 14, 2011

Nov. 10 (Bloomberg) -- HTC Corp. Chief Executive Officer Peter Chou got the call when Sprint Nextel Corp. wanted to develop the first smartphone for a higher-speed wireless network last year.

Sprint needed the phone fast, with a design that would stand out in the market. No problem, Chou told the executives. HTC’s engineers spent about seven months building the device with Sprint and launched the Evo last June. The debut gave Sprint bragging rights for the first fourth-generation phone in the U.S., and won Taiwanese manufacturer HTC strong support at a major carrier.

“Peter personally makes a commitment and gets the team to rally around it,” Steve Elfman, Sprint’s president of network operations, said in an interview. “They were able to design with us. Peter himself would be there describing products at a technical level.”

HTC has become the top seller of smartphones in the U.S. with a strategy that’s precisely the opposite of Apple Inc.’s. Where Apple is secretive, HTC is open. Where Apple is exclusive, HTC works with all carriers. Where Apple is proprietary, HTC is collaborative. Where Apple customizes for no one, HTC customizes for everyone. It’s the anti-Apple and, so far, it has worked.

“HTC will make products for you,” said Elfman. “We certainly don’t do design work on Apple products.”

The question is whether HTC can stay on top. Chou has benefited as people trade in traditional phones, used primarily for voice calls and texting, for smartphones, which can download apps and surf the Web. Carriers scrambling to keep up with demand such as Verizon Wireless and Sprint turned to HTC for smartphones that use Google Inc.’s Android software during the almost four years AT&T had exclusive U.S. rights to the iPhone.

Brand Weakness

Yet as the market matures, HTC may be vulnerable. All three of the top U.S. carriers can now offer the iPhone, and HTC lacks the brand cache of Apple and rivals that use Android, such as Samsung Electronics Co. and Sony Corp. It also has to compete with new Microsoft Corp.-powered phones from Nokia and a revamped lineup from Research In Motion Ltd.

The result is that, after claiming the top position in the third quarter for the first time, according to researcher Canalys, HTC will likely lose ground in the U.S., said Matt Thornton, an analyst for Avian Securities LLC.

“HTC will never be No. 1 again,” said Thornton, who is based in Boston and rates HTC’s stock “neutral.” “Now they’re butting heads against others who so far have been immovable.”

HTC Founding

Chou said he understands the challenges. Still, he said HTC will stick with the strategy that has helped it forge strong ties to carriers in the U.S. and globally, helping the company almost double revenue last year and post five consecutive quarters of record profit.

“Developing a good brand is really hard,” Chou said in an interview in New York. “We come from a company with no experience, no resources for developing a global brand. We have to be friendly. We have great relationships.”

HTC was founded in 1997 by Chou, Cher Wang and HT Cho. Wang, chairwoman of HTC, is Taiwan’s richest woman and daughter of Formosa Plastics Corp. founder Wang Yung-ching, who was Taiwan’s richest man before he died in 2008.

The company began as a contract manufacturer, one of many Asian companies that made gadgets for Western technology companies at low margins without a trace of their own brand. It manufactured notebook computers and personal digital assistants for Compaq Computer Corp.

In 2002, Chou won a contract with Microsoft to make Windows-based phones and quickly became their top producer globally. HTC also made the first Android phone in 2008, and now makes both kinds of phones.

‘Lives on Planes’

By quickly incorporating the latest technologies and customizing phones for customers, Chou has forged ties to more than 100 wireless operators on six continents. The company has climbed to the No. 4 position in smartphones globally, behind Samsung, Apple and Nokia.

“He lives on planes,” said Anurag Gupta, president of Europe, the Middle East and Asia for Brightpoint Inc., which distributes mobile phones and other products. “He’s a huge force behind HTC and he has a great team.”

HTC has benefited from the rising popularity of Android, which is catching on faster than Apple devices. Android grabbed 44 percent of the market in the quarter ended in August, compared with 38 percent three months earlier, according to ComScore. Apple kept its 27 percent share.

‘Long History’

“Their long history with operators has helped them build a market, dating back to when phone companies spent lots of money on 3G networks and wanted to promote their own brands and services,” said Lu Chia-lin, a Hong Kong-based analyst at Samsung Securities Asia Ltd, who rates the stock “buy.” “HTC realized that this model couldn’t last forever, so they made the move into branding and innovation to build customer awareness.”

Chou, an engineer by training, worked at Digital Equipment Corp. before starting HTC. Harvard Business School’s Advanced Management Program instilled in Chou the importance of presentation and style, helping transform him from engineering geek to chic CEO. To build an international mindset, Chou set the company’s working language to English, with memos and meetings conducted in that language rather than Chinese.

The company operates “almost like a startup,” quickly and intimately, said Elfman, who is meeting this week with Chou in Taiwan -- a trip he makes annually.

Chou is pushing beyond simply making hardware. HTC acquired five software and content-related companies in the past two years to add features. The company is betting that content, software and services will set it apart, Chou said.

Lady Gaga Party

A $300 million controlling stake in Beats Electronics LLC, the headphones maker backed by rapper Dr. Dre, was part of a strategy to lure music enthusiasts with a marketing plan that included bringing singer Lady Gaga to an Oct. 6 audio party in London to release the HTC Sensation XL, its first handset featuring Beats audio technology and headphones.

Chou said he cares more about making unique products than making good profit margins. He listens and acts quickly. Often, when Beats co-founder and music producer Jimmy Iovine calls with an idea, Chou will have sent off an e-mail about it before the conversation is over, Iovine said. Chou said he tests the music himself.

“We are investing in an emotional and cultural experience,” he said.

Steep Climb

The investments may not be enough to keep HTC ahead in the U.S. With Apple’s iPhone now being sold by Verizon Wireless and Sprint, demand for other handsets may slow. Sales associates in wireless retail stores unanimously recommended the iPhone for the average smartphone buyer, according to a Wells Fargo & Co. survey in 20 U.S. cities last month.

Samsung, the world’s largest smartphone maker, unveiled the Galaxy Nexus in October to become the only vendor globally with Google’s latest operating system, called Ice Cream Sandwich, on its phones. HTC said in a Facebook post Nov. 7 that eight of its handsets will be upgradable to the operating system in early 2012 -- not in time for holiday shopping.

The competition is expected to weigh on sales in what is typically a busy quarter. HTC expects handset shipments to be 12 million to 13 million this quarter. The company may post its slowest profit and sales growth in almost two years, according to analysts’ estimates.

Chou said maintaining the leading position in the U.S. is not his top priority. He’s focused on creating cutting-edge products and making sure HTC continues to grow globally.

“If you have a great product, business will come,” he said.

--Editors: Peter Elstrom, Jillian Ward

To contact the reporters on this story: Sarah Frier in New York at sfrier1@bloomberg.net; Tim Culpan in Taipei at tculpan1@bloomberg.net.

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net; Michael Tighe at mtighe4@bloomberg.net.


Later, Baby
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus