The past four years have not been kind to HTC (NASDAQOTH:HTCCY), which saw its global smartphone market share drop from 11% in 2011 to less than 2% today. Therefore, it wasn't surprising when CEO Peter Chou stepped down earlier this month. Chou, who co-founded and led HTC for over a decade, was replaced by co-founder and chairwoman Cher Wang.
Unfortunately, HTC might simply be rearranging the deck chairs on the Titanic. Let's take a look at the market forces which are sinking HTC, and why the odds are stacked against Wang.
How HTC lost its way
HTC claimed an early lead in the smartphone race by launching the first Android phone, the first Nexus-branded device, and the first 4G phone in the U.S. Unfortunately, Samsung's (NASDAQOTH:SSNLF) wide array of phones at all price tiers flooded the market, and HTC couldn't match its South Korean rival's development and marketing budgets.
As HTC's market share plummeted, it launched gimmicky devices like a 3D phone, phones with dedicated Facebook buttons, and the world's first Facebook Home device, the HTC First. None of those devices helped HTC regain its lost market share. Meanwhile, the Android market became saturated with cheaper rivals.
HTC eventually reduced its number of phones and focused on marketing flagship devices like the HTC One, which is now on its third iteration with the M9. These new devices were well received critically, but came up short commercially. HTC's profits stabilized over the last three quarters, thanks to dramatic cost cuts and the Nexus 9 tablet, but it still faces a steep uphill battle to regain market share.
A rock and a hard place
Today, Apple (NASDAQ:AAPL) is dominating the high-end market with the iPhone 6, and low-margin competitors like Xiaomi, Lenovo (NASDAQOTH:LNVGY), and Huawei are reducing price expectations for high-end Android phones.
That pressure is crushing Samsung, which saw its market share slide from 29% to 20% between the fourth quarters of 2013 and 2014, according to IDC. Other Android players, like Sony (NYSE:SNE), which controls around 2% of the market, aren't faring much better. Sony recently decided to focus on growing margins instead of market share by selling fewer phones at higher prices.
Since HTC mainly competes in the same high-end Android market as Samsung and Sony, it's doubtful that it can succeed while its larger rivals are failing. Even Xiaomi is bolstering its high-end lineup.
Before taking over as CEO, Wang helped run "various aspects of the business," according to HTC. Back in 2011, Wang stated that HTC should diversify its business beyond smartphones.
Some of these projects -- including the Re Camera, Grip fitness band, and Vive VR headset -- recently emerged. But none of those devices are unique to HTC. The Re Camera is just an attempt to tap into GoPro's action camera market, and the Grip and Vive are respectively reactions to Samsung's Gear smartwatches and Gear VR headset. Like Samsung, HTC might launch new Windows Phones soon, which could give it some breathing room against cheaper Android rivals.
HTC's scattergun strategies also increase its research and marketing expenses without any guarantees of revenue growth. Therefore, promoting new gadgets could weigh down HTC's bottom line if new handset sales fail to offset those expenses.
HTC hopes that new ideas cooked up in the company's Future Development Lab will help it tap into future growth markets. However, the division will now be led by Chou, who didn't excel at identifying new opportunities when he was CEO.
What HTC needs to do
In my opinion, HTC's near-term future doesn't really depend on action cams, fitness bands, or VR headsets. Instead, it needs to decide if it wants to pursue market share growth like Samsung or bigger margins like Sony.
Neither path will be easy. To gain market share, it must slash prices on the mid-range Desire devices, which still cost more than comparable Xiaomi devices. That could cause revenue to rise but earnings to falter. If HTC decides to sell fewer devices at higher prices, its market share and revenues will decline as its brand loses visibility.
Therefore, if Wang continues promoting niche gadgets and postpones making a firm decision on smartphones, HTC could be clobbered as the high-end Android market implodes.
Leo Sun owns shares of Apple and Facebook. The Motley Fool recommends Apple, Facebook, and GoPro. The Motley Fool owns shares of Apple and Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.