HTC One Max and the road to hell

HTC One Max Analysis

The new HTC One Max is one of those sad freaks of nature: A spin-off phone that is being launched after the model it is based on has started stumbling. Despite faster production cycles, handset product roadmaps still tend to be locked in at 12 to 16 months ahead. This can lead to a situation where a company realizes it has picked the wrong direction, but has no choice but to walk down Hades Avenue for several quarters until it can execute a course correction.

HTC made a big miscalculation when it bet the farm on the HTC One, a svelte and expensive high-end model. Not only did HTC’s device operating margin drop to roughly 1% during the launch quarter of the new high-end flagship but the autumn quarter margin is now projected to plummet to -8%. This is not what usually happens when a high-end model ramps to peak production volume.

The situation reflects the rapidly changing smartphone landscape; consumers no longer see any reason to buy an expensive smartphone from a second-tier brand. The $600-plus niche has been taken over by Apple and Samsung, leaving other vendors scrambling to move to lower price points. Except that HTC chose not to scramble: It built the HTC One to be the sort of pricey luxury vehicle that HTC was selling successfully back in 2011. And now it is following up with the HTC One Max, a stretch limo version of a model that is already fading.

What HTC should be doing right now is launching a variety of budget models and hoping something sticks. Nokia is getting some real traction with the Lumia 500 line that has models selling for under $200 without a contract. The One Max is expected to retail close or possibly above the $700 mark without a contract. It’s exactly the kind of Maserati HTC does not need in its stable right now.

The only thing that can save HTC from a disastrous Christmas period is now the HTC One mini. The problem is that this “budget” model seems to set for a debut in the United Kingdom with a hair-raising non-contract price of £365, which translates to well above US$500. Let’s see if HTC really goes through with this pricing approach or opts to drop the One mini price steeply to get some volume momentum heading into winter. With a 4.3 inch screen  featuring 340 PPI pixel density, the One mini is not designed to be sold cheaply, so price cut room may be limited.

It’s no primrose path HTC has chosen to walk down for the next couple of quarters.

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