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Will HTC meet the same fate as VIA?
Publication Date : 29-09-2013
The question of whether HTC — and its share price — will meet the same fate as VIA now looms again in the minds of the investing public, amid reports of the handset maker's ailing performance and the eruption of defection scandals within its corporate leadership.
Both companies share the distinctions of being founded by Cher Wang and of once enjoying the title of “crown jewel” of the Taiwanese market, at one point leading the local index in share price only to dramatically fall from those commanding heights.
Veteran traders still remember witnessing VIA's share price fall rapidly from its height at around the NT$600 (US$20) mark over a decade ago to the NT$20 mark, where it still lingers today. Similarly, HTC shares tumbled from their 2011 apex at around NT$1,300 to about NT$130 recently.
The year 2013 was lauded by HTC as one of redemption, with the company placing all its hopes on its new One flagship smartphone in hopes of recovering from a lackluster 2012. However, the company's fortunes continue to wane, with supply chain issues plaguing sales during the flagship's debut in March. Six months later, supply chain issues came back to haunt the company's release of the One Mini, a smaller and lower-priced variant of the new One. Reports point to a casing shortage arising from design difficulties, rendering the company unable to fulfill consumer and telecoms carriers' orders for the handset.
The honeymoon period for the global smartphone boom may be over, with competition heating up as the sector becomes saturated. Companies who could not adapt swiftly soon found themselves beleaguered, as seen in the examples of Blackberry, Nokia and Motorola, who all dominated the mobile device market at certain points.
Perhaps a revision of strategy is needed for handset makers, as it seems that the business model of launching a few high-end handsets with the most cutting-edge hardware, flanked by a myriad of mid- to low-end models every cycle is no longer wise or sustainable. With the exception of avid Apple fanatics, consumers no longer unthinkingly purchase each season's “hero device” upon launch, rendering the hardware arms race a fruitless pursuit.
Instead, companies should shift their focus to establishing a sustainable ecosystem of apps and to cultivating a sense of community among their user base to instill brand loyalty and ensure sustainable long term earnings prospects.
A new breed of smartphone maker has risen rapidly in mainland China in the form of Xiaomi Inc. The privately-owned company last year sold 7.2 million smartphones in Taiwan, China and Hong Kong, with revenues of US$2.1 billion, or 12.6 billion yuan. A recent funding round valued the company at US$10 billion, a tremendous achievement for a company founded only in 2010.
Lin Bin, Xiaomi's co-founder, recently claimed that his company, widely regarded by market commentators as China's answer to Apple, more resembles Amazon. While Apple's industry-leading margins are well known, Xiaomi offers its products at or near cost. Similar to Amazon, the company sells its products online directly to customers, foregoing conventional brick-and-mortar retail locations.
Just as Amazon sells its Kindle electronic ink readers and tablet computers at low prices, drawing profits from the sale of content, Xiaomi hopes to draw revenues from consumers as they use the handset, rather than take one-off profits from unit sales.
With over 160 million users worldwide, the company's own application market has accumulated over 20,000 software offerings and 500 million downloads. At present, the company's application market is among the top five most active Android-based ecosystems, with average daily downloads of 1 million.
According to reports, Xiaomi's service revenues reached 20 million yuan in August, up from 10 million yuan in April. Xiaomi employs the classic internet business model — build a user base and monetise it later, a method that has seen success in the hands of Google and Facebook, said Lin, who added that while selling apps, games, custom user interface themes, wallpapers and virtual gifts may not seem very lucrative, it is where the greatest growth have been observed.
The success of the “virtual trinkets” model is backed by precedents such as LINE, a rapidly rising messaging platform, and vanity items in online computer games.
The stellar performance of Xiaomi debunks claims that it is impossible to stand against the might of Samsung and Apple. Hopefully HTC can find a way to follow their example.
US$1 = NT$29,51