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HTC in Hell

Updated Dec 19th, 2018 8:32PM EST

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This HTC warning was different. There has been a stream of them since last November, but the latest one broke the back of Wall Street’s strongest HTC bulls, who finally gave up their Buy ratings. The reason is simple: HTC (2498) had just rolled out its big new product range that was supposed to go head to head with Samsung’s (005930) Galaxy and Apple’s (AAPL) iPhone ranges. Major flagship phones rarely flop badly — but if they do, the worst-case scenario is debuting a new line in the spring and then facing a grim slog to a fallow Christmas season.

HTC is probably the least diversified phone vendor outside Apple. Its lack of low-end pizzazz means the company is entirely dependent on its big high-end launch each year. The latest — HTC’s One X — debuted in May and went limp in June.

The implications are grim. HTC must keep on flogging this dead horse all through the autumn back-to-school season and the coming Christmas season, when Apple will be ramping up “iPhone 5” volume aggressively. Samsung will be cutting Galaxy S III prices to counter the iPhone 5 and rolling out cheap Galaxy variations aimed at recession-spooked European consumers.

This may seem like a distant memory, but in the spring of 2010, Samsung and LG (066570) were neck and neck in the U.S. handset market. Each possessed 22% of the market. Over the following two years, LG tried to copy every move Samsung made, without trying to create any distinction between the brands. Samsung’s superior display technology and slightly better hardware build demolished its South Korean rival.

HTC learned nothing of this episode — on the contrary, it has rushed to repeat LG’s mistakes with an eerie precision.

HTC is guilty of a great folly by refusing to learn from LG’s downfall. The Taiwanese company held 10% of global smartphone market share two years ago and insisted on facing Samsung and Apple in direct competition. Now HTC’s smartphone share has plunged below 2.5% and is still falling.

The HTC One X is priced at 34,000 rupees in India — much too close to iPhone at 37,000 rupees and Samsung Galaxy S III at 39,000. In contrast, Nokia’s key model in India, the Lumia 800, is priced at 21,000 rupees and the Lumia 710 costs 14,000 rupees. The Lumias have inferior specs compared to the One X, but at least feature novel hardware design, a new UI and much lower prices than the Apple-Samsung duo.

Likewise, Research In Motion (RIMM) is far behind the smartphone leaders in specs, but it can offer some differentiating factors such as BlackBerry Messenger. As a result, even with its dismal current BlackBerry hardware line-up, BBM usage in South Africa has grown by 467% over the past 18 months, outpacing Facebook (FB) and Twitter handily. RIM may be doomed, but it still has a sliver of a hope in emerging markets.

HTC has no niche to call its own.

You can see the consumer indifference towards HTC spread like molasses across the most popular mobile phone websites across the world. On GSMArena, the HTC One X now rates just 24,000 daily hits, lagging behind not only Samsung’s big guns but also a Nokia Asha budget device and mid-level Sony (SNE) Xperia entries. This is a complete reversal of the halcyon days of early 2011, when HTC dominated search volume. On some popular U.K. phone retail sites, HTC doesn’t even get a single slot on the front page contract phone grid.

Years ago, HTC opted against building a true budget phone range, so it is now locked out of the booming low-end markets of Latin America and Southeast Asia. Already weak in July, HTC is going to get creamed in Europe during the autumn as Samsung and Apple wage battle amid deepening consumer gloom. After dominating Amazon (AMZN), AT&T (T) and Verizon’s (VZ) smartphone sales in early 2011, HTC’s lead models for these two carriers now languish at positions No.21 and No.24.

Many analysts assumed that HTC’s good quality would prevent it from truly imploding. We are now witnessing a fascinating experiment on just how damaging lack of differentiation can be — even for a vendor with awesome products.

Image source: Ariel Zambelich/Wired

After launching mobile game company SpringToys tragically early in 2000, Tero Kuittinen spent eight years doing equity research at firms including Alliance Capital and Opstock. He is currently an analyst and VP of North American sales at mobile diagnostics and expense management Alekstra, and has contributed to, Forbes and Business 2.0 Magazine in addition to BGR.