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June 05, 2006
Risky move for Microsoft's Taiwan partner
High Tech Computer, the Taiwanese ODM that has long been the world's leading developer of Windows smart phones, announced on Friday that it is taking control of one of its customers, an outfit called Dopod International. HTC has been one of the hottest electronics companies in Taiwan thanks in part to its willingness to stay a player behind the scenes. (Here's a recent BW story on HTC.) Unlike HTC, which doesn't market under its own name but instead designs and produces phones for others, Dopod (the first syllable is pronounced "doo") is in the brand business. The company markets phones and PDAs under the Dopod name in China, Taiwan and Southeast Asia. (Some Dopod models shown in the photos above.) Travelers waiting to have their check-in luggage screened at Chiang Kai-shek International Airport in Taiwan see a giant Dopod advert on the wall of the terminal.
The stock market hasn't taken the news well: HTC stock dropped 7% today. That still leaves HTC up 57% for the year and almost five times higher than June 2005, but there's reason to worry. Everyone in the industry knows that Dopod and HTC have had strong connections - HTC's chairwoman, Cher Wang, was a key investor in Dopod. But by making the relationship formal, and turning Dopod into a subsidiary, HTC has now entered the brand-name business. That's something that has gotten other Taiwanese ODMs into trouble. Most notably, Acer Inc. tried for years to have it both ways by being a contract manufacturer on the one hand and by selling PCs under its own brand on the other. The model didn't work, since few brand-name customers were interested in giving business to an ODM that was also a competitor. Acer spinoff BenQ, which has tried to sell its own brand-name cell phones while maintaining a contract manufacturing operation, has had the same sort of problem.
Betting against HTC hasn't been a good idea. At a time when other Taiwanese electronics companies have been floundering, saddled with shrinking margins and stagnant stock prices, HTC has stood out from the pack. Profits have soared and the stock price has too. I guess HTC execs have decided that, when it comes to operating a brand business at the same time as an ODM business, they know something that has eluded other Taiwanese.
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