• HTC today announced its preliminary revenues for August 2015 and as expected it was not rosy and hit the lowest level ever, and this is far from over
• The revenues more than halved a year ago in a crucial time in the quarter when its flagship series should be doing well with rollout across major countries since launch at the end of Q1 2015.

• HTC peaked its position in smartphone space in Q3 2011 reaching its highest market share ever of 10%. Since then it has been a free fall with HTC reaching its lowest market share in smartphone space ever at 1.4% in Q2 2015.
• India’s Micromax, China’s Meizu and its Taiwanese neighbour Asus registering terrific growth rates are shipping much more smartphones than one the oldest and mature and deign-centric smartphone brand
• The key reasons for the downfall can be blamed on the shoddy management with haphazard product planning and incompetent marketing folks which failed to leverage the brand & design heritage as well as experience curve
•  HTC during its peak was too much dependent on North America and Europe which contributed most of its sales.
• However, with rise of Samsung and Apple in USA and Europe led to a swift decline and there were no other growth markets to bank on.
• HTC never recovered from falling off that cliff losing premium market to Samsung & Apple which have greater marketing, brand and distribution power
• As a result, HTC tried to strengthen its mid-tier portfolio in 2013, 2014 which helped it grow a bit in China, India and a few Asian markets to gain scale but with rise of Chinese brands such as Xiaomi, Huawei quickly weakened HTC’s portfolio.
• So HTC has lost to Samsung & Apple in developed markets and to Chinese brands in emerging markets.
• Thus, weaker distribution footprint, management with lack of foresight and ability to adjust to the highly competitive environment in spite of attractive engineering in the premium segment but not trickling down the entire portfolio.

Exhibit: HTC’s Operational Revenue & Growth Trends over Last Decade

•   It is an uphill task for HTC to regain its position and even double its marketshare with current strategy and portfolio.
• HTC needs to revamp and consolidate its offering with a consistent design language and striking key partnerships with other industry players in content, software & services space to improve the value proposition of their devices.
• Being a pure hardware only vendor won’t take HTC far enough.
• HTC should learn from another Taiwanese company Asus how it is making a comeback and scaling up with cutting edge specs at highly affordable price-points.
• Similarly, Motorola as well following Xiaomi’s footsteps selling online in many markets its highly attractive offering in form of Moto X/G/E at affordable price-points and charting phenomenal comeback.
• If this doesn’t work, a potential merger or getting acquired is the only way the company can return value to its shareholders and think about growing with other company.
• However, for that HTC atleast for short- to mid-term will need to raise its game, make itself attractive to others.
• HTC should focus on building an IP portfolio over the next couple of years and eventually maximize its valuation. Merging with other Taiwanese companies such as Acer or Asus to justify scale could also be a possible strategy.

To summarize, Smartphone market is like “Hotel California” barriers to entry to smartphone market has been lower than ever but barriers to exit are higher than ever – so you can enter anytime but very difficult to leave