HTC Betting on Windows Phone

By Peter Pham - August 14, 2012 | Tickers: AAPL, GOOG, MSFT, NOK, QCOM | 0 Comments

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Taiwanese mobile phone maker HTC is in a bad place, of that there’s no doubt.  In the world of Google’s (NASDAQ: GOOG) Android, HTC used to be the top of the heap but they have slowly lost ground to the South Korean giant-in-the-room Samsung, who continues to solidify its hold on the Android market as the purveyor of the phones that everyone wants.  HTC had something close to first mover advantage in this space but ceded it over time and now their revenues are collapsing faster than Nokia’s (NYSE: NOK) when they announced they were ditching Symbian for Microsoft’s (NASDAQ: MSFT) Windows Phone. 

But, Samsung’s ability to churn out more models faster with more and better customization of Android has ground HTC’s position as the leader in Android smartphones down.  One only has to look at the profit generated to see that while Apple (NASDAQ: AAPL) commands nearly 2/3^rd’s of the profit generated by the industry, Samsung generates most of the rest, while everyone else fights over the last 5-6%.  It wasn’t hard to predict that eventually that advantage would generate the current situation.

HTC’s most recent quarter saw top-line revenue drop 36% year over year and operating income drop 72%.  It is having to admit defeat in penetrating the South Korean market because of the population’s homegrown preference; commanding just 1% of the smartphone market there.  But more importantly, while HTC builds beautiful, full-featured smartphones that in many ways push the envelope, they also, in general, do so at the expense of user experience, most notably in terms of longevity.  Android is notorious for being both a data and bandwidth hog, constantly pushing data back and forth in large packets checking for updates.  Mating a huge AMOLED screen with a power/data hungry OS and fitting it with a miniscule battery will eventually catch up with you.

This is ultimately the reason for HTC’s downfall.  It is questionable if they can recover at this point.  Enter Windows Phone 8 (WP8), which HTC has three models in the pipeline to be ready in late September.  It will be the Zenith phone which may be running the quad-core Qualcomm (NASDAQ: QCOM) S4 pro SoC that will be of interest.  TMSC’s 28nm fabrication woes have plagued the industry all year.  This is important for WP8 as much as HTC. 

One of the selling points for Windows Phone over Android is its ability to run so smoothly on lower-end hardware.  Building a flagship device which is not in Samsung’s current plans would be quite the platform from which to show off the performance possibilities of WP8.  If Nokia is not the first to market with this flagship WP 8 that would be really embarrassing for them and put them behind the curve as the top-end partner that Microsoft has been supporting. 

The Zenith will also put the best that Qualcomm has to offer on the shelves next to Apple’s imminent iPhone 5 and its rumored A6 SoC, of which no one has any idea about its specs, but we should expect more performance not less.  The best we know at this point is that TMSC, not Samsung, will be building them and they will be a 28nm process like Qualcomm’s Snapdragons. 

For HTC, WP8 exists as a form of do-over; creating the opportunity to push into the new market of WP8 without the overhang of past mistakes with Android.  That’s the best that can be said at this point.  With Nokia building a strong WP base in Europe, especially Finland and Germany, they are not out of game yet, especially since they have Microsoft’s money behind them for at least the next 3 quarters.

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