HTC has become a total disaster

HTC Q2 2013 Earnings Analysis

Why does HTC CEO Peter Chou still have a job? That’s the only question that comes to mind when looking over HTC’s latest earnings report, which shows the company is hurtling toward a meltdown not seen in the mobile world since BlackBerry circa 2011. Despite making one of the year’s best smartphones in the HTC One, the company on Tuesday reported that its operating margin had fallen to just 1.5% in Q2 while warning that its operating margin could further erode to -8% in Q3.

What made these results so devastating for HTC was that much of the blame for its erosion in margins can be placed on the HTC One, the smartphone that the company was counting on to be its savior in 2013. As ZDNet notes, the costs of producing the HTC One are so high that HTC really needed the device to be an enormous hit to make them worthwhile. But although the One has been a bigger success than HTC’s ill-fated 2012 flagship smartphone lineup, HTC isn’t releasing sales figures for the device, which suggests that it has come in well below the company’s expectations.

Even if the One had met HTC’s expectations, it’s no sure bet that the company would be in much better shape. In retrospect, HTC’s decision to put all its eggs in the One basket looks like a disastrous miscalculation because the company chose to bet big on the high-end smartphone market just as all the growth in the industry had moved toward low-cost handsets sold in emerging markets.

IDG News reports that HTC has somewhat recognized this problem and is vowing a “new range of mid-tier products” to address it. This move is far too little, too late, however, because HTC’s competitors are well ahead of it when it comes to releasing low-cost smartphones. What’s more, “mid-tier” products aren’t going to give HTC any kind of edge in key emerging markets. Without a budget handset on par with Nokia’s Lumia 521 or Samsung’s assorted cheap Android phones, HTC looks like it has nowhere to go but down unless the One miraculously reaches Galaxy S4 sales levels over the next several months.

All of which brings us back to our original question: Why does Peter Chou still have a job? We’ve heard rumblings all year that the HTC One would be Chou’s last chance to prove himself before getting ousted by anxious shareholders. The results are now in: HTC’s strategy with the One has failed spectacularly. There is no longer any reason for Chou to stick around.

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