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Why HTC Is Losing the Smartphone Game

HTC One smartphones on display at the Mobile World Congress in Barcelona on Feb. 26

Photograph by Simon Dawson/Bloomberg

HTC One smartphones on display at the Mobile World Congress in Barcelona on Feb. 26

Once the darling of the Android smartphone market, HTC (2498:TT) experienced yet another quarter of missed expectations, lower revenue, and meager sales. As Bloomberg notes, the company posted first-quarter net income of NT$85 million (US$2.8 million), a 98 percent decrease from the same quarter a year ago. HTC says monthly revenue for March was NT$15.82 billion, a boost of 39.69 percent from the prior month but still around half the revenue from March 2012.

The company and media are starting to spin the story a bit, partially blaming the delayed new flagship HTC One handset. But let’s be honest: A few weeks’ delay for the new handset due to shortages of case and camera sensor components aren’t what’s slowly killing HTC’s momentum. The issues have been in the works for nearly two years—being beat by Samsung Electronics (005930:KS) in the marketing department, investing in questionable technologies, and not realizing that while consumers may complain about plastic phones from competitors, they’re still buying those devices.

To be sure, the smartphone game is one of timing and momentum. So delays of the HTC One aren’t helping the situation. But that device alone won’t instantly turn around a company that’s been free-falling for the past 18 months. The One was introduced Feb. 19 and was due out in the latter half of March. Even if the phone were launched on time, it couldn’t save a bad quarter with just two weeks of sales. The next month and quarter could be negatively affected if delays continue, but blaming delays on the prior quarter doesn’t make sense.

So what’s the deal with HTC? The company is facing the same problems it has had for several quarters. It doesn’t have the marketing budget of Samsung, for starters. That means it relies heavily on carriers for support, and that’s risky business. Then there was the $300 million investment in Beats Audio, a nice feature that a few crave but not one that’s going to sell phones to the masses. HTC later sold back half its interest in Beats.

Lastly, there’s the perception of how much people value well-built Android hardware. I’d argue that HTC designs and makes some of the best Android handsets. They have heft but aren’t too heavy, have few actual hardware issues, and are solidly built. And many folks don’t like the “plasticky” cases of competitors’ phones—I’m looking at you, Samsung.

But in the overall Android market, which is quite vast, software trumps hardware. And while I don’t intend to point at one player here, it’s Samsung’s plastic phones that are pushing the envelope faster with software. When people see unique features—think multiple apps on the screen, hovering with a finger, exceptionally good note-taking with a stylus—they can overlook something such as phone case quality.

That doesn’t mean HTC isn’t making strides in software; they are. But I’d say they’re a half-step behind Samsung’s pace, and when you combine that with the other factors involved—a marketing disadvantage and brand awareness, to name a couple—it’s easy to see the problem.

The HTC One will help boost revenue for the company, of that I have no doubt. But this one phone, delayed or not, won’t save or damn the company. Much of the damage has already been done. Now it’s up to HTC to react in a way that convinces people it can turn things around in the long run. For now, it’s Samsung’s galaxy, and HTC is just living in it.

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Tofel is a writer for the GigaOm Network.

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