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HTC’s Chou Tells Workers ’Kill Bureaucracy,’ E-mail Shows

HTC Corp. (2498), facing a record drop in sales, needs to “kill bureaucracy” and improve communication after changing market conditions allowed competitors to gain share, Chief Executive Officer Peter Chou told employees.

“We have people in meeting and talking all the time but without decision, strategic direction or sense of urgency,” Chou wrote to HTC’s workers, Chairwoman Cher Wang and the board of directors in an e-mail obtained by Bloomberg News. “Bureaucracy crept in without clear ownership. We agreed to do something but we either didn’t do it or executed it loosely.”

Sally Julien, a spokeswoman for HTC, confirmed the e-mail.

HTC, the Taoyuan, Taiwan-based maker of Desire, Sensation and One smartphones, forecast revenue this quarter as much as 20 percent less than analysts’ estimates as competition from Apple Inc. (AAPL) and Samsung Electronics Co. halved its global share. Declining sales and profitability have prompted HTC to close offices and cut jobs to reduce costs.

“We are disappointed that our sales are down while smartphone market share is growing,” Chou wrote in the Aug. 9 e-mail titled “we are coming back.”

Fast Growth

“Our competitors can leverage their scale, brand awareness and big marketing budget to do things which HTC could not do,” Chou wrote. “The fast growth from the last two years has slowed us down.”

Revenue surged 67 percent last year after jumping 93 percent in 2010, according to data compiled by Bloomberg. That figure dropped 31 percent in the first half of this year.

HTC shares lost 4.1 percent to close at NT$243.50 in Taipei today, taking its decline this year to 51 percent after dropping 42 percent last year. Revenue this quarter will be NT$70 billion ($2.3 billion) to NT$80 billion, it said Aug. 3, missing the NT$87 billion average of 10 analysts’ estimates compiled by Bloomberg in the 28 days prior to the announcement.

Chou, 55, said the company needs to build on its culture, “committed” employees and customer relationships.

“Don’t let the processes, rules and norms to impact our important goals,” he wrote. “Of course we have to follow certain rules and criteria but don’t let small things kill the major goals.”

“The industry’s best rating” for HTC’s One X handset is evidence the company has the best products, Chou wrote. There are also strong products in the pipeline for this year and early next year, Chou wrote without naming them.

Market Noises

HTC’s share of the global smartphone market dropped to 4.5 percent in the first quarter from a peak of 10.7 percent in the second quarter of last year, according to data compiled by Bloomberg Industries. Its sales have missed analyst estimates for the last four quarters, Bloomberg data show.

Chou said workers have every reason to remain confident and should not be “influenced by noises from market and industry” because the company is “just having short-term challenges.”

“Please make sure that we kill bureaucracy,” he wrote. “Stay firm with the hero innovations and make them even bigger and deliver them.”

To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net.

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net.

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