The HTC One
David is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
HTC’s most recent quarterly earnings pointed to a bleak time ahead, quarterly sales dropped by over a third compared to first quarter 2011, net profit dropped by 70%, and net profit margin shrank to just above 7%. HTC’s market share has also dropped, ComScore recently ranked HTC fifth of smartphone manufacturers with 6.3% of the market. However these issues that HTC is facing will be relativity short term, and though Apple (NASDAQ: AAPL) and Samsung have the top two spots for smartphone makers locked down, HTC will be a strong third place Android manufacturer going forward and will live up to their slogan “Quietly Brilliant.”
HTC has in a sense been a microcosm for the fragmentation we have seen throughout the Google (NASDAQ: GOOG) Android ecosystem. A recent study from the Android app OpenSignalMaps counted 3,997 unique Android devices of the 700,000 downloads their app has had, although over 1,300 of the devices only appeared once indicating that they are not mainstream Android devices. HTC alone has phones include the sensation, rezound, amaze, EVO, thunderbolt, Incredible Desire and on and on. HTC seems to launch a new phone every few weeks. In 2011 HTC released 50 devices and these devices haven’t seemed to be part of a uniform platform or line of products like Apple offers with the iPhone line and even Samsung offers through their Galaxy branded flagship android line.
Apple has refreshed the iPhone line several times since its initial launch but its screen size, general button configuration and interface has not changed. Though there are rumors that an iPhone with a larger screen will launch, the very simple easy to understand and recognizable iPhone look and feel have added hugely to the power of the iPhone brand. So much so, that Samsung has been taken to court by Apple because Apple felt that Samsung's custom user interface that they place on top of Android was too similar to Apple's interface.
Even with Apple's lawsuits, Samsung has become the largest Android smartphone maker largely because of their Galaxy line of phones. The physically largest Galaxy phone sold over five million units and was one of the first smartphones with a screen larger than five inches. Five million pales in comparison to the twenty plus million Galaxy SII’s that Samsung sold as of 2011, and Samsung had 20% gross margins on its smartphones in part due to their streamlined and standardized high end product line. The SIII, which is the successor to the SII and the next flagship Galaxy phone from Samsung, has reportedly already racked up nine million pre-orders before its global roll out this summer.
HTC has launched a competitor to the Galaxy line with their ‘One’ series android powered smartphones. The first three of these HTC phones are currently rolling out the One X, One S and One V. The strategy behind these three phones for HTC is that every carrier will have a version of these phones to offer, and that they will be mostly uniform. Instead of what we have now where every carrier seemingly offers randomly different HTC phones at different times and different prices. This comparative simplicity will help consumers understand what HTC has to offer and it will help HTC manage their devices support and software upgrades since they will have a more uniform line of devices to deal with.
This will also help Google because even though HTC is not the largest Android handset maker the trend we are seeing with Samsung and now HTC is that of more a streamlined, less customized Android offering. This will help the Android update cycle as well as unifying at least somewhat the Android user experience. Android App makers will also be able to more easily test there apps to the hottest selling top of the line Android devices if these devices are more standardized across carriers and new versions are released annually instead of in the rapid fire manner that they are currently.
The new HTC line also features Ice Cream Sandwich, the latest version of Android and a must have at this point for a flagship line of Android smartphones. The phones have a toned down version of Sense, the user interface that HTC imposes on top of the Android operating system. This toned down approach is the right approach for HTC to take, as they add some functionality with Sense while not interfering with Ice Cream Sandwich too much. HTC also struck a 300 million dollar deal to buy a majority stake in Beats Electronics. The One series of phones has Beats audio integrated into them and HTC is using that higher quality audio to sell their new phones and create a uniform audio experience. HTC has also attempted to create uniformity with the cameras across their phone line by including a separate processor chip in each of these three new phones that is dedicated to all camera related processes. HTC claims that this gives their phones an edge over the competition in taking and editing pictures and videos.
Along with a new uniform flagship line of Android Smartphones HTC will now be able to focus more on innovation, putting more research and development into fewer devices to produce a higher quality product. A single yearly update to their flagship product line like Apple does with the IPhone, and Samsung does with the Galaxy S, instead of releasing a new flagship device every month will also help HTC gain market share and mind share.
HTC does have a few issues going forward, due to a legal snafu with Apple, several of the One X models were being indefinitely held by US customs. Though they now have been released this delay wasn’t exactly the type of press HTC wanted for the launch of their new line. Verizon Wireless (NYSE: VZ), the nation’s largest wireless carrier, has announced that they will not carry the One line, at least not the current models. Instead Verizon will carry two other HTC phones which not only hurts HTC’s US sales of the One series but also undermines HTCs goal of a more streamline uniform easy to understand product line.
HTC could have long term issues going forward getting its phones on Verizon, because Verizon’s top tier Android smartphones tend to be under their Droid brand and usually do not have additional branding like the ‘Galaxy S’ or ‘One’. The Galaxy SII, the current Samsung flagship smartphone is also missing from Verizon and the only high end non-Droid branded Android smartphone on Verizon at the moment is the Galaxy Nexus. However Verizon’s Droid line is already dominated by Motorola built smartphones, Motorola built the original Droid and currently has the Droid 4, Droid Bionic, Droid RAZR and Droid RAZR Maxx all selling as high end Droid branded Android options on Verizon, so HTC may not be hurt too much by Verizon not carrying the One line. AT&T and T-Mobile do not have their own brands for Android based smartphones like Verizon does and neither do most international carriers.
The One series has received excellent reviews and heralds a new dawn for HTC as they respond to customer confusion over the myriad of devices that they released every year in the past and strengthening competition. With just one flagship line, made up of three smartphones, a high end - the One X, a middle option - the One S, and a lower end - the One V, HTC brings conformity to their premier Android line of smartphones. HTC is currently trading close to a 52 week low however with their new, simpler, higher quality ‘One’ series smartphone line HTC has seen the light and will soon be able to compete far more effectively against other Android manufacturers like Samsung and Motorola.
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