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Goodbye, HTC

By Evan Niu, CFA - Apr 23, 2013 at 11:00PM

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Taiwanese smartphone maker HTC had one final swing at a turnaround with its One device. Unfortunately, everything is falling apart right at crunch time. Goodbye, HTC.

Things haven't been going so hot for Taiwanese smartphone OEM HTC lately. Unfortunately for the aspiring turnaround candidate, things are getting worse before they get better.

The company's One smartphone is tasked with driving HTC's turnaround. All other considerations aside, the flagship device looks like quite a contender with its Apple-caliber hardware and revamped software overlay. The tough part thus far has been getting the device in consumers' hands, since HTC component shortages caused the company to delay the One's launch.

STMicroelectronics (STM -2.72%) and OmniVision (NASDAQ: OVTI) are the two camera suppliers, and HTC is reportedly no longer considered a "tier one" manufacturer so it doesn't get priority any more. That implies that one of these image sensor specialists was giving HTC the cold shoulder in favor of bigger names.

Marketing matters
Samsung has simply buried HTC in a marketing avalanche that HTC can't keep up with, even if HTC's products are higher quality. HTC had vowed to ditch its "Quietly Brilliant" tag line in an effort to shift toward louder marketing. That was nearly a month ago, and that modest motto is still prominently displayed on its site.

Some of HTC's ads last year had rather convoluted messaging, but its most recent marketing push is even worse. The company commissioned Funny or Die to create a parody ad for its One, starring James Van Der Beek of Dawson's Creek fame. Following widespread derision, the clip was quietly taken down. Copies were floating around on YouTube but have been suppressed by Funny or Die on copyright grounds. It was a terrible attempt, and HTC should feel embarrassed.

When being social isn't special
HTC is Facebook's (FB -7.62%) first official partner with its new Home software suite, recently launching the HTC First. However, that's a mid-range phone and Home is hardly a differentiating feature since the social network is targeting a broad audience and Home is available for download in Google Play for a select number of devices.

Partnering with Facebook could pay small dividends, but nothing substantial enough to save the company.

The final straw?
Most recently, Nokia (NOK -0.61%) has scored a preliminary injunction against HTC in the Netherlands over a microphone component inside the One. At issue is STMicroelectronics providing HTC certain microphone components for the One -- components that were invented by and manufactured exclusively for Nokia.

The Finnish smartphone maker said it was just the latest in a long string of cases where HTC was using Nokia technology without consent, citing over 40 patents that Nokia has asserted against HTC throughout the world.

HTC said it's still looking into how big of an impact this could have on its business and is exploring "alternative solutions immediately." While STMicroelectronics is headquartered in Switzerland, it is organized under the laws of The Netherlands, which suggests that this injunction could potentially be a major blow to the One. HTC could overcome the setback, possibly by switching components, but that may cause even further delays, and this could be the final straw when considered alongside the other recent fumbles.

Everything is going wrong for HTC right now. Even after acknowledging the importance of marketing, the company is already making missteps. The component supply chain isn't giving HTC any respect and is also now a battleground where rivals are trying to stifle its access to crucial ingredients.

CEO and founder Peter Chou said in March that he would step down if the One failed to turn the tide. I would have liked to see HTC mount a turnaround on the strength of a high-quality device like the One, which is garnering impressive reviews from the broader tech press. Sadly, quality products aren't enough. Marketing and supply chain management are just as -- if not more -- important.

Goodbye, HTC.

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