Htc in 2009

HTC Corp. in 2009

1. Analysis of HTC’s Performance to Date (as of 2009)

Delivering high quality products to the market, HTC has performed very well as a mobile handset provider by 2009. It seems that HTC’s change in marketing strategy to gain brand awareness was successful at that moment. Although increased cost on R&D weighs on its financial status, overall status of the company is still healthy enough. However, there are still several issues which the company has to address to achieve further growth.

Table 1: SWOT Analysis on HTC’s Performance in 2009 STRENGTH | WEAKNESS | * Cutting-edge design technology * Manufacturing capability * Strong relationship with Microsoft | * Lack of original OS * Dependence on Microsoft * Scarce presence in the US market | OPPORTUNITIES | THREAT | * Rise of Android OS * Declining former leading players | * Fast-moving industry trends * Rising cost in marketing and R&D * Strong competitors (Apple, Samsung) |

STRENGTH:
As the table above shows, HTC’s core competence is its capability in designing and manufacturing hardware by itself. The successful sale of HTC Diamond, the company’s latest model, proves that “designed by HTC” products could draw consumers’ attention. In addition, its own factory in mainland China made manufacturing process more flexible and independent from potential external risks. Moreover, robust relationship with Microsoft underpinned HTC’s credentials as a handset provider and helped the company which used to be a player in ODM market to enable to gain presence in consumer market.

WEAKNESS:
HTC does not have software development capability and thus the company has to adopt OS from others. In year 2008, 89% of HTC’s revenue was generated by products with Microsoft platform, while emerging Android OS from Google accounted only 6%. This shows HTC’s heavy dependence on Microsoft platform, of which user experience is said to be not good enough at all. It would be crucial for the company to make right decision in its OS strategy.

OPPORTUNITIES:
According to a survey, share of Android phones in the smartphone OS platform market is expected to be double of that of 2009. Considering that this OS is completely open source offering application developers a platform for which they can freely deliver content and there are already about 3200 applications existed, the Android Marketplace is likely to be one of the most popular app markets in near future. While Windows Mobile, one of the major smartphone platforms at the moment, is struggling in developing updated version and it cannot catch up with fast-evolving smartphone trends, hardware makers including HTC have to consider changing their platform strategies. Indeed, HTC released first Android phone in the market. HTC should leverage this experience to become leading maker of Android smartphone.

THREAT:
Trends in the smartphone market change rapidly. It is very important for players in this market to sense a certain signal of shift and stay ahead of competitors. But this shift forces companies to invest significant resource in R&D and marketing. Even if a company successfully launches a groundbreaking product, that company has to keep investing in further development of the next product. Players have to manage shortened product lifecycle while reading market trends.
Leading players in the market such as Apple, Samsung and RIM aggressively compete to take initiative and expand market share. They show certain competitive edge; Apple has ultimately user-friendly iPhone, Samsung has tremendous marketing power, and RIM has established reputation from business users. HTC has to acquire some elements to compete with these market giants.

2. Analysis and Recommendation on OS Strategy

1. Windows Mobile
Leveraging its experiences and established reputation as the leader in software market, Microsoft, the first major platform provider, still has strong presence in the market with its Windows Mobile platform. This OS might be able to expand its market share in the future. However, the possibility is quite small according to the industry reports which predicted that “HTC’s market share in the Windows Mobile platform would decline more than half to 33% by 2010.” In addition, licensing fee for Microsoft is the second biggest expense category for HTC.

2. Other OSs (Android)
Android OS is still on the emerging stage and accounts only for 2% of market share in February 2009, but the market share rapidly increased to 9% in August 2009, while other OS except iPhone OS decreased their share in the same period. This indicates increasing demand and expectation for this operating system offered by search engine giant Google, whereas consumers are losing appetite on other existing OSs. As mentioned, HTC is the first maker in delivering Android smartphone to the market; that is, HTC has advantage in developing further Android based product over the competitors. HTC can compete with competitors with stronger capital or product power only by taking initiative.

3. Developing Own OS
As Apple invented innovative iOS and developed hardware which can maximize the advantage of the OS, HTC would no longer be annoyed with limitations of OS and extra cost on adding features to each product if it has its own OS. Plus, with the original OS, the company can gain its brand awareness drastically. However, if HTC were to start developing its own OS, the company would face a number of obstacles. One issue is increased cost on R&D. CEO Chou estimated that it would cost a minimum of $200 million to develop an OS and an additional $50 million in annual maintenance costs. The other one is time to market. Smartphone market evolves rapidly and it is difficult to catch up with the shift, especially for HTC which does not have experiences or assets on software development. HTC would need to hire engineers or acquire a part of some company or a whole company to do so.

Conclusion:
Given the analysis, I would conclude that HTC should choose Android as the main platform for its products. It is obvious that the other strategies are not realistic considering the current situation of HTC and the market. However, it needs to keep investing certain portion of total budget in Windows Mobile to sustain revenue.

Table 2: Comparison of Three Possible Strategies 1. Windows Mobile | Pros | Cons | - Relatively small investment in further product development will do- Expectation for future major update | - Declining market share due to poor user experience it offers- Costly licensing fee | 2. Other OSs (Android) | Pros | Cons | - Rapid growth- Large number of apps in the Android Marketplace- No licensing fee | - Being emerging stage (future uncertainty) | 3. Developing Own OS | Pros | Cons | - Reduced limitation and cost for product development- Increased brand awareness | - Huge cost- Time to market- No background of software development |

3. Recommendation on Overall Business Strategy

In addition to the Android OS strategy discussed above, HTC needs to plan further business strategy to compete with major smartphone vendors. I would recommend that HTC adopt Selection and Concentration strategy. This strategy is composed of two major parts as below.

* Focus on Flagship Model with Annual Major Update:
HTC concentrates on “killer” product(s). An Android based flagship model which targets so-called “prosumer” and at most two high spec models targeting general consumer are released annually. An idea based on this is that shortened product lifecycle tends to result in lower product quality of respective products. With one year of product development period, HTC can invest in a quality product with sophisticated design and high performance. Apple adopts this strategy and it successfully grabs consumers’ attention to its annual product launch. Plus, only these products are allowed to have HTC logo, and most part of marketing budget is spent on them. This strategy helps gain brand awareness as a high-end smartphone maker.

* Return to ODM Business:
While limiting “HTC” products, the company returns to be an ODM vendor and provides products without HTC logo. It helps generate stable revenue and save marketing and R&D costs, allowing the company to concentrate its major resource on the flagship models. Reputed manufacturing and designing capability of HTC would attract second tier players in the market and emerging smartphone vendors. Designing and manufacturing experiences gained from ODM can also be reflected to development of the flagship products.

This strategy, if market share of Android grows as expected, will possibly enable HTC to obtain solid position in the competitive smartphone market. Other strategies such as OS development will be also feasible once abundant cash flow is generated. Finally, whether or not to implement this strategy HTC has to make decision as soon as possible. In the rapid-moving smartphone market, agility is one of the most important things that players always have to keep in mind.

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[ 1 ]. Adapted from “Asia Pacific: Handsets,” Goldman Sachs Investment Research
[ 2 ]. “Asia Pacific: Handsets,” Goldman Sachs Investment Research
[ 3 ]. “Asia Pacific: Handsets,” P8
[ 4 ]. AdMob Mobile Metrics Report