HTC Profit Sinks On Smartphone, Tablet Woes

HTC reports 58% profit plunge, blames patent litigation and weak consumer demand. But its overall strategy may be the problem.
HTC has had a rough go of it over the course of the last year. At first a leader in the Android smartphone market, it steadily lost ground to rival Samsung, which surpassed it last year. Friday, the company reported initial earnings estimates for the second quarter, and they show the company's profit dropped 58% and its revenue sank 27% when compared to the year-ago quarter. HTC's first-quarter numbers weren't all that great, and neither were its 2011 fourth-quarter numbers. What's going on with HTC?

Throughout 2011, HTC released phone after phone after phone. It seemed hardly a week went by without HTC trotting out a new smartphone. The company later realized this strategy probably wasn't working, and it decided to pare down the number of new models it brings to the market during 2012.

So far this year, it has launched the One series, which includes the One X, EVO 4G LTE, One S, and One V; the Droid Incredible 4G LTE; and the Titan II.

The One series, in particular, represents some of HTC's best design, spec, and feature work. The One X, for example, is one of the best phones to be released by any manufacturer this year. Unfortunately, HTC no longer spells out handset sales by device, nor by region, so we don't know how many of them have been sold around the world. The One X has been for sale from AT&T since early May, the EVO 4G LTE by Sprint since June, and the One S by T-Mobile since May.

[ Does Asus' Nexus 7 tablet violate Nokia's Wi-Fi patents? Read more at Nokia: Nexus 7 Tablet Infringes Patents. ]

HTC was faced with an import ban in late May, however, that made the One X and other models unavailable for a few weeks in the United States. HTC blames that ban, in part, on its poor performance for the quarter. The problem is, HTC doesn't sell devices only in the United States. It's a worldwide business, and the One series is being sold by multiple carriers the world over.

HTC isn't competing in the tablet market, either. It brought two tablets to market in 2011, the Flyer and JetStream. One offered a smaller display and the other a larger one. Both were sold with and without cellular wireless data connections, on contract and off contract. Neither was a hit. In response, HTC said it would cool its tablet aspirations in 2012 in order to focus on its smartphones.

Though many hardware makers have slowed down their tablet plans (especially Android tablets), Samsung and Apple have ramped things up. Apple brought a new iPad to the market earlier this year, and Samsung has announced at least three new tablet models this year. Add to those the new Nexus 7 tablet from Asus, and the tablet market is really beginning to firm up.

About the only good news coming from HTC this quarter is that its results aren't as disastrous as the previous two quarters, but that's hardly a consolation.

Perhaps part of the problem is that HTC has apparently decided to cede the low end of the market to competitors. Last month, HTC CEO Peter Chou said that offering entry-level devices would cheapen HTC's brand and it wants to stick with premium devices. Meanwhile, Samsung, LG, ZTE, Huawei, and others are flooding the market with low-cost devices that are being purchased by the tens of millions.

Taking all this into consideration, it is easy to poke holes in HTC's current strategy, but the lack of strong sales of its One X devices is a puzzler. Clearly, the company needs to do something to turn its smartphone and tablet businesses around. What that something is, however, is a mystery at the moment.

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