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Old HTC Bravery: A Look at Financial Hurdles & Lost Inspiration

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HTC now needs a winner more than ever — that’s what an AnandTech review brilliantly summarized. Not in 2015, mind you, but in 2013 while reviewing the first successful phone of the HTC One line. And a winner they got. The M7 and the M8 reminded us of why the Taiwanese company used to dominate.

So why are they back in the same position once more?

In 2012, the One X was introduced with positive reviews, but that didn’t translate well into sales. The M9 launched to harsh reviews and poor sales. The general feeling was that people wanted a proper successor to the M8, a better M8. Should we have been surprised that the M9 delivered “more of the same”?

And yet, HTC is in dire straits now. They’ve come far from where they were in 2011, so I figured I’d take a look at some of the internal reasons behind the decline. While that will not paint the full (or entirely objective) picture of why they are where they are, looking at the raw data will highlight some the factors they themselves had control over. Has research and development costs changed over the years? Perhaps it is a matter of diminishing returns, can companies afford to keep the pace of improvement with the same amount of money spend? Or is it a matter of cutting costs in the marketing department?

The M9 wasn’t as catastrophic a phone as the losses numbers would have you believe.

Let’s take a look the situation just after the M7 launched. While there are no exact figures on units sold available, looking at the net profits from the first quarter post-release gives an indication of how well a device does, especially when compared to the equivalent period of the next iteration.

HTC has had a habit of releasing their flagships in March for the past few years, at the very end of the first fiscal quarter of the year, so new releases cannot be expected to have too much impact on overall results in Q1. However, costs associated with the release (marketing, shipping etc.) are mostly spread in the time leading up to launch, so a change in Q1 results could also indicate how the device will perform.

For simplicity’s sake, let’s ignore that for now. The net profit for Q2 2013 was NT$1.25 billion, or roughly $37.5 million (in current exchange rates, not adjusted for inflation). A year later, Q2 2014, after the release of the M8, net profits were at NT$2.3 billion, or $69 million. Again, to reiterate, these numbers do include sales of low- and mid-end devices where profit margins are much higher. Still, the fiscal period just after the M8 was released had net profits almost twice as high as the same period a year before. So how did the quarter just post-release of the M9 do? HTC reported a net loss of NT 8 billion, or just about $240 million. While there’s more to it than just the net profits, it’s clear that the M9 sales performed well below expectations.

Source: Quarterly reports from www.investors.htc.com

Could it be that the devices simply aren’t marketed well enough then? In the first half of 2013, around the release of the M7, HTC spent about NT$14 billion ($426 million) on marketing. For the M8, that number was a bit lower, NT$12 billion ($363 million). The first half of 2015, that number had dropped further to NT$10 billion ($300 million). While the profits for Q2 of 2014 were higher than those of 2013 (in spite of less spent on marketing), the same did not hold true for the M9. By (extreme) comparison, Samsung Electronics had a marketing budget of $14 Billion in 2013, some 15-and-change times as much as HTC. Now, “Samsung Electronics” does include all divisions of Samsung, so far from all of that money was spent on its mobile division, but it puts the numbers into perspective — HTC is not the giant it once was, and not the biggest player around.

HTC lost the crucial bravery that made them great

The M9 wasn’t as catastrophic a phone as their sales numbers would have you believe. The fatal mistake, rather, was that it wasn’t much different from the M8. Charging flagship prices, you need to offer something more than “arguably better.”

Comparing some benchmark scores between the two, the M9 performed better in multi-core tests, but slightly worse than the M8 in single-core ones. The real kicker comes when comparing the M8 to the M7, where there was a significant improvement.

What’s more, the screen of the M9 is, at best, on par with its predecessors. Adding insult to injury, the M9 also bore the brunt of the negative publicity surrounding the Snapdragon 810 and overheating.  Then you factor in the iterative design, the disappointing camera output, and you get a troubling phone.

HTC now needs a winner, more than ever. Again. How did we get here? They spend less and less on marketing in a market that has only seen increased competition and narrower margins. Research and development costs have remained fairly constant over the past two and a half years, which tell something of a story on it’s own. Ignoring Taiwan’s somewhat unstable inflation rate, every dollar spent on R&D since the M8 has translated poorly to device performance and sales. I recently read an article that reminded me of how HTC used to be at the forefront of progression, adapting to new technologies and throwing all their strength at whatever the “new thing” was.

That has changed. To be fair, it could be tied to a maturing (or stagnating) market, where the annual leaps in technology progression are much smaller than five years ago, especially for those without the resources of Samsung or Apple. But that is not all; they’ve lost something crucial of what made them great. Bravery. Risk-taking. Daring to throw their entire weight behind their coming product, and not being afraid of making something new, something different. They got comfortable, and took the company motto of “quietly brilliant” just a bit too literally. There’s a “spark” that has faded, and you no longer get the sense that HTC eagerly wants to show you what they’ve been working on.

This article, Old HTC Bravery: A Look at Financial Hurdles & Lost Inspiration, first appeared on xda-developers xda-developers | ES File Explorer A Short Story of A Fallen King.