Peter Chou, chief executive officer of Taiwan-based HTC, raised eyebrows recently with comments about his company's current smartphone strategy. Despite the company's recent struggles to sell smartphones, HTC will not pursue volume sales of entry-level smartphones. Instead, it will concentrate on making mid-range and high-end smartphones that offer a superior experience.

"We don't want to destroy our brand image," said Chou in an interview with The Wall Street Journal. "We insist on using better materials to make better products that offer premium experience. Many consumers like that."

This is at least partially true. Most people like nice things, and some (read: those who can afford to) will pay to own them. It's a questionable strategy for HTC to undertake, though, and one that might haunt it down the road.

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First, it's not clear what brand image HTC has left at this point. HTC has had a tough 18-24 months. In 2010 and 2011, the smartphone maker kicked out dozens of new models. They tended to be high-end devices (think the Amaze 4G and the Vivid) that commanded higher price points. The company may have shot upward in the smartphone world in early 2010, but it was flagging a bit by the end of that year. Its sales throughout 2011 did not live up to expectations, and already this year HTC has warned that sales are still soft.

In other words, HTC has already become known as a company that makes good phones that don't sell well.

What's worrisome is that HTC revised its strategy headed into 2012. So far this year it has introduced three new smartphones--all part of the same "One" series. The One X (AT&T) is the cream of the crop, and is one of the best smartphones to hit the market this year. The One S (T-Mobile USA) is a solid runner-up to the One X. The One V is a middle-of-the-road offering that has yet to launch fully in the U.S. Despite the excellent lineup of (fewer) smartphones, HTC believes its revenue will be off this quarter.

Since it's not selling high-end phones and mid-range phones in large enough volumes, this is where bulk sales of low-end devices could help shore up its finances. HTC just doesn't see things that way.

Most smartphones that sell in China go for the equivalent of about $160. The cheapest smartphone sold by HTC in China costs twice that, at $314. HTC competitors Motorola and Samsung have waded into the low-cost smartphone game in the Chinese market, but HTC "won't have good products at that price level," said Chou.

The problem for HTC is that Samsung also owns the high end of the market with its Galaxy line of smartphones. HTC can't give both segments to the competition lest it lose out entirely. Companies like Apple might be able to get away with shooting for the upper class with its products, but HTC cannot.

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