The hyper competitive handset market could be about to claim its next victim.

HTC (NASDAQOTH: HTCXF) was once the top smartphone vendor in the U.S., besting both Apple (NASDAQ:AAPL) and Samsung (NASDAQOTH: SSNLF) in market share and handset shipments. But now, the Taiwanese tech giant appears to be on the verge of collapse. The story of HTC serves as yet another cautionary tale of what can go wrong for handset makers and investors in the sector.

The HTC One M9. Photo: HTC

The rise and fall of HTC
HTC was an early adopter of Google's Android operating system, a partner to all the major U.S. carriers, and an early proponent of 4G connectivity. Those factors played key roles in its rise. The HTC Dream, released in 2008, was the first handset to run the Android operating system. The HTC ThunderBolt, released in 2011, was the first handset to support Verizon's LTE network, while the HTC Evo 4G was the first to support Sprint's competing 4G standard, WiMAX. Samsung's first Android handset launched a year after the Dream, and the original Galaxy S didn't make its debut until 2010. Apple didn't offer an LTE-equipped iPhone until 2012, and it took until 2013 for it to come to every major carrier.

In the third quarter of 2011, research firm Canalys reported that HTC was the top smartphone vendor in the U.S., taking nearly one quarter of the market and shipping 5.7 million smartphones. In that same quarter, Samsung shipped only 4.9 million smartphones, and Apple shipped just 4.6 million. Investors reacted to HTC's dominance by bidding up shares. In April, 2011, its market cap rose to nearly $34 billion.

But HTC's success proved temporary. With Samsung's Galaxy series hitting its stride and Apple's iPhone expanding to Verizon and Sprint, HTC's sales and profits began to slip. From the beginning of April, 2011 to November, 2012, HTC shares shed almost 80% of their value. The company tried to reverse the slide: it pledged to reduce the number of models it would offer, and focused on using more premium materials in its flagships. The HTC One M7, released early in 2013, was widely praised by many critics, but failed to captivate buyers. HTC's subsequent flagships, the One M8 and One M9, offered only incremental improvements. In China, a market that had once been vital to HTC's success, it was devastated by home grown upstarts including Xiaomi and Huawei.

Earlier this month, shares of HTC plunged after it turned in a disappointing third-quarter forecast. Its current market cap -- around $1.2 billion -- is less than its cash on hand.

Are Apple and Samsung next?
HTC's story is a familiar tale. Other handset makers, including BlackBerry, Motorola, and Nokia, experienced similar collapses brought on by competitive pressure. In fact, back in 2010, Nokia's former CEO Anssi Vanjoki correctly predicted that HTC would eventually run into trouble.

Vanjoki based his prediction on HTC's use of the Android operating system. Consumers would find it easy to move from one Android manufacturer to another, he argued, and profits would fall to a permanent low. For that reason, it seems more likely that Samsung, rather than Apple, could suffer a fate similar to HTC's. Indeed, Samsung's sales and profits have been falling for about a year, as increasingly competent low-cost Android handsets erode the market for its premium Galaxies. With its ownership of the iOS operating system, Apple has more security, as consumers who want an iOS-powered handset have no other choice. Yet like HTC, Apple's business is overwhelmingly dependent on handset sales -- Samsung competes in many other markets.

At any rate, it stands as yet another cautionary tale of what can go wrong for a handset marker. While investors often complain about the relative valuations of Samsung and Apple, the business of selling smartphones remains inherently risky.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.