Help This Company: A post-mortem of HTC’s horrible start to 2015

Have you heard about HTC lately? 2015 is shaping up to be an awful year for the company. In March the company had a market cap of $4.06 billion, and today—only a few months later—it’s worth less than half of that. The stock price, at about two bucks a share, is at a 10-year low. HTC just wrapped up the second quarter of 2015, where it posted a net loss of $258 million. And the trend is downwards—year over year, HTC’s monthly revenue was down 38% in April, 48% in May, and 60% in June. Will July be even worse? HTC is back to being that struggling OEM that feels like it could be permanently knocked out of the race at any time. There’s even been talk of the company being acquired.

Before the start of Q2 2015, HTC’s previous four quarters were actually profitable. Every quarter showed fewer profits than the last, though, and things really started to crater in April. Why is HTC doing so poorly? One reason might be that April happens to be the first full month when the company’s 2015 flagship, the HTC One M9, went on sale.

We reviewed the M9 a few months ago, and it seemed like a disaster in the making. The HTC One M8, the company’s 2014 flagship, didn’t do very well in the market. A normal response would be to go back to the drawing board and revamp things, but for 2015 HTC changed very little. The M9 had a new SoC and cut gimmicky features like the Duo Camera system, but for the most part the M8 and M9 are so similar even HTC gets them confused in its advertising.

There’s more to HTC than just its flagship product, and while we can’t blame all of HTC’s woes on the performance of the M9, it seems to be a big indicator. Just look at the company’s 2015 product lineup to see how much of an influence the flagship has over the rest of the phones. Everything about it, from the launch to the design to the advertising, has been pretty poorly executed.

Out-of-control hype and customer disappointment

HTC’s problems began in the run-up to the HTC One M9 launch. A press render from the well-known leaker Evleaks promised a big overhaul of HTC’s flagship design. It would have an all glass front, more compact speakers, and come in two different sizes—phone and phablet.

The leak made a ton of sense. The M7 and M8 were the bulkiest 5-inch phones on the market, due in large part to the speakers. HTC had already experimented with cutting down the speaker size on lower-end phones like the Desire Eye, so we all thought this would carry over to the high-end devices. The M7 and M8 were quite similar, and a big revamp for the M9 would put HTC in the same familiar “tick-tock” release schedule that Apple follows: release a big update every other year.

HTC’s 2015 roadmap will be our best ever–with some huge surprises that will blow you away. ;)

— Jeff Gordon (@urbanstrata) December 31, 2014

The rumor was completely wrong, though. Now, a rumor being wrong isn’t HTC’s “fault,” but the company did little to calm the hype surrounding the launch of the M9. HTC knew what everyone believed. It knew that the phone it planned on releasing was far more conservative than the rumored one, and it did nothing to deny the rumors. In fact, comments from HTC representatives primed customers to be “blown away” in 2015. Coming from a smartphone company, everyone believed this was in reference to the company’s smartphones.

Companies like to have their secrets, and they don’t want to spoil a launch surprise themselves, but they should manage the rumor mill to stop people from being disappointed. The king of this, of course, is Apple, which occasionally leaks exactly this category of news story to the press. Consider these stories in the run-up to product launches.

• Recode: Apple Subscription TV Service Won’t Be Announced at WWDC.
• The Wall Street Journal: Apple’s 12 inch iPad is delayed.
• The Financial Times: The Apple “iWatch” is delayed until 2014.

These stories have a common purpose. Apple is talking to its fans through the press, saying “Hey, don’t expect this rumored thing at our next event. It’s not happening, so don’t be disappointed when we don’t talk about it.” HTC did nothing.

Once the phone launched, HTC managed to screw up the marketing, too. The company hired Robert Downey, Jr. at the height of Marvel movie frenzy (great!) but never managed to turn the deal into a decent, memorable ad (really?!). The only ads produced were about coming up with nonsense phrases that HTC stood for like “Hipster Troll Carwash” (correct answer: “High Tech Computer”) or videos of RDJ doing… weird stuff and then ending with a One M9 splash screen. The ads never talked about what the One M9 could do or why anyone would want one (admittedly a difficult task). HTC even lost its Marvel street cred when Samsung signed with the comic company and produced an Iron-Man themed Galaxy S6.

Slowing down when everyone ahead of you is speeding up

The last three years of HTC flagships: The One M7, M8, and M9.

Credit: Ron Amadeo/HTC

Adding to HTC’s problems, the company made a halfhearted update to a poorly selling phone in a year when the top sellers did big revamps to their flagships. Samsung was the number one worldwide smartphone vendor in 2014, and for 2015 it released the all-new, glass-and-metal Galaxy S6 and the eye-catching, curved-screen-packing Galaxy S6 Edge. Apple came in second worldwide in 2014, and for 2015 it launched the iPhone 6 and 6 Plus—two all-new products with new screen sizes and designs. HTC probably came in somewhere in the sixth to tenth range in 2014 (market share lists only show the top five) and its 2015 response was to move even slower than the market leaders.

For the M9, HTC’s biggest upgrade was supposed to be the Qualcomm Snapdragon 810 SoC, but the chip turned out to be so hot and throttled so quickly that it wasn’t much of an upgrade over 2014 devices. The heat and throttling reports also made consumers wary of Snapdragon 810-devices. HTC knew these chips were hotter than normal—it’s something that anyone will notice immediately after just picking up the M9. It still chose to plow ahead with an 810 device, though. Maybe it thought consumers wouldn’t care or wouldn’t notice the throttling? It’s hard to see an OEM including the 810 as anything other than a calculated choice, and in HTC’s case, it blew up in the company’s face.

The too-hot-to-handle Snapdragon 810 was another problem the market leaders, Samsung and Apple, were able to avoid, further distancing themselves from HTC. Apple never ships Qualcomm chips and was unaffected, while Samsung—which typically shipped Qualcomm chips in the United States—used the poorly received 810 as an opportunity to bring its own Exynos line to flagships in America.

HTC never published sales numbers for the M9, but we’re guessing they were awful. Rumors from the supply chain said that HTC could cut component orders for the M9 by 30 percent, while one carrier even dropped the M9 from its lineup due to “lackluster sales.”

The M9 flagship isn’t the cause of all of HTC’s woes, but it’s a good indicator of the company’s problems. In its Q2 guidance revision, HTC blamed its financial problems on “slower demand for high-end Android devices and weaker than forecast sales in China.” The only other high-profile device the company makes is the Nexus 9, which ended up being an overpriced tablet with poor build quality.

HTC has been doing so poorly that Asustek was openly considering buying the company in June. HTC publicly shot down Asus, saying that it “will not consider the acquisition.” The stock shot up 10 percent when Asus’ window shopping hit the newswires but resumed its plummet after HTC’s rejection.

HTC needs to totally revamp its flagship smartphone, reevaluate what features it thinks are important, and, frankly, be a little hungrier. For the past few years, the company has acted more like a complacent market leader with a best-selling smartphone. It’s been taking the “if it ain’t broke, don’t fix it” approach to its phone design, keeping pretty much the same template for the M7, M8, and M9. When your market share only measures in the category of “other,” though, things are very much broken. HTC’s phones keep not selling, and the company keeps not changing them.

HTC’s recovery will be tough

HTC’s expanded lineup: the Vive VR headset, the Re Grip, and the Re.

Credit: HTC

HTC at least knows it is doing poorly. HTC’s new chairwoman and CEO, Cher Wang, apologized to investors last month, saying, “HTC’s recent performance has let people down.” Wang, a co-founder of the company, just took over in March, replacing the other co-founder and longtime CEO Peter Chou.

As for HTC’s recovery, reports said Wang promised a new “hero” smartphone in October and “significant improvements in innovation and design for the next flagship model next year.” The first step to recovery is admitting you have a problem, so hearing this is great news. HTC saying it’ll have “significant improvements in innovation and design… next year” makes it sound like it won’t have improvements this year, though. The quote could possibly refer to a One M9-style phablet, which would be more of the same for HTC.

Wang also suggested cost cutting; might we suggest killing the entire software division? HTC has had this weird obsession with being a software developer. It makes a newsreader/Flipboard clone called Blinkfeed, a social network called HTC Zoe, a greeting card app, and, of course, its entire “HTC Sense” Android skin. None of these projects help the company sell hardware. Stock Android with no extra apps would be a huge differentiator in the market. It would immediately get HTC some good PR and would improve the user experience of its phones. Plus, it would cost less than all of these dead-end software projects.

While the company’s smartphones are a mess, HTC has been slowly broadening its horizons and producing products other than smartphones. So far we’ve seen the company launch a fitness band in partnership with Under Armour and a weird camera without a viewfinder, neither of which were very exciting. We have a hard time seeing HTC’s expanded product lineup as anything other than a move away from smartphones, given how poorly it is doing here and how much of a low-priority the One M9 seemed to be. The company says it is still committed to the smartphone market, but with results like this, we wonder how long it will remain committed.

The brightest star in HTC’s future is the Vive VR headset. HTC teamed up with the legendary PC gaming company Valve to produce the lead device for the Steam VR platform. The Vive, like most VR headsets, is a legitimately exciting product and has earned HTC some much-needed good press. With HTC struggling financially, it would probably love to have a hot, best-selling VR headset on its hands. The Vive isn’t a product yet, though, and might not be one for some time. The concept of “Valve Time” exists for a reason—Valve is a perfectionist company and likes to delay things—and these delays are all software projects, which the company has years of experience in. Valve has much less expertise when it comes to launching a hardware product, and VR itself is mostly uncharted territory. HTC could be in for a long wait for a commercial product.