A Taiwan Tycoon Returns to Rescue HTC
When HTC two years ago first tried to attract attention to its new line of smartphones, the One, it threw a bunch of people out of a plane. The Taiwanese company challenged a photographer to make a commercial while skydiving, and sent lighting and makeup crews hurtling earthward along with him and a model. The ad looked cool but didn’t stop consumers from turning their attention elsewhere—toward Apple and Samsung.
Back when the skydiving stunt was filmed, about 1 in 10 smartphones sold globally came from HTC; now it’s about 1 in 45. Since the third quarter of 2011, its Taiwan-listed shares have plunged 77 percent. After logging an operating loss of $54 million for 2013, HTC on April 7 reported a first-quarter loss of NT$1.88 billion ($62 million), well below average analyst estimates.
The task of stopping the free fall will now fall to Cher Wang, HTC’s co-founder, chairman, and largest shareholder. Her role at the company has always been a little murky to outsiders, but now she has fully stepped into day-to-day management, taking control of marketing, operations, and customer service from co-founder Peter Chou, the president and chief executive officer.
In an interview at the company’s headquarters on the outskirts of Taipei, Wang says Chou isn’t going anywhere. Sitting between Chou and her assistant, whose laptop has a piece of paper taped over its logo, Wang says she has faith in the CEO’s phone designs and that he asked her for help selling them. “We just have to communicate well with our customers,” Wang says. “I believe if we can communicate better, we will do better.” Chou has fewer responsibilities, but he’s keeping his titles. “I think we are on the right track,” he says. “Now Cher is 100 percent focused on marketing, customer service, so I don’t have to worry. I have a lot more time driving the product, quality, supply.”
With Apple and Samsung in control of about half of the global smartphone market, HTC is reversing course and backing away from high-end hardware. The company, which had pared down its One line from nine models at various price points to a single flagship phone, is now developing new low-end hardware. When last year’s model of the One was released, it sold about 5 million phones in its first two months, compared with 20 million for Samsung’s Galaxy S4. (The iPhone 5 hit the 5 million mark in three days in 2012.) This year’s One, the M8, got rave reviews for its sleek design and high performance when it was released in March, a few weeks ahead of the Galaxy S5. HTC hasn’t released early sales figures.
Under Wang, HTC also is adding contractors to shore up its supply chain, which snapped last year when its component makers ran out of some parts. Before Wang’s help with daily operations, Chou says, “I was too busy” to keep an eye on such problems.
Wang is trying to return to a model that includes less expensive phones, but she’s still trying to establish a high-end image in the U.S. HTC is guaranteeing U.S. customers a free replacement for any smartphone screen that cracks within six months of purchase. To promote the One M8, HTC hired actor Gary Oldman for a talk-to-the-camera spot that suggests the phone is the choice of the most discerning consumers. That message is at least more targeted than the slogan used in the skydiving ad: “Quietly brilliant.”
Although boards at struggling companies often demand full-scale overhauls, Wang isn’t planning big personnel changes. “We have great people,” she says. Chief Financial Officer Chia-Lin Chang isn’t just staying in place; he’s now heading global sales. “Once you fix the product portfolio issue, you will be able to realize your potential,” Chang says.
Since Wang, 55, started becoming more active at HTC last summer, the stock has rebounded slightly, if inconsistently. The daughter of a petrochemical billionaire, Wang was Taiwan’s richest woman until HTC’s stock tanked. She owns more than a fifth of HTC, which she helped create in 1997 after 15 years with First International Computer, a PC manufacturer co-founded by her sister Charlene. She has dedicated time to charity, establishing a Chinese college free to students from low-income families and handing out tablets to high school kids in Taipei, and supported research into condensed-matter physics. At HTC, Wang’s experience, resources, and networking in the U.S.—she has a master’s degree in economics from the University of California at Berkeley—helped her recruit executives able to shape the company into a smartphone pioneer. HTC had the first phone running Android, and as recently as the third quarter of 2011 was the top smartphone brand in the U.S.
Today, Samsung is the dominant maker of Android phones and Apple is the most valuable company in the world. Of 31 analysts who cover HTC, not one recommends buying its stock. The company’s first-quarter sales decline of 23 percent from both the previous quarter and the same period a year earlier reflects “poor management of production,” says Calvin Huang, an analyst with SinoPac Financial Holdings in Taipei. “It will take more than quality products to save HTC.”
Although it’s hard to see how HTC has a chance against its giant rivals, let alone a wave of low-cost upstarts from mainland China, the company has some options. It has a market valuation of about $4.4 billion, no debt, and a decent amount of cash. Its new, cheaper smartphone, the Desire 816, has had a strong early run in China. HTC could partner with a Chinese company, or it could go private, as Dell did after it went into a slump.
Wang says she doesn’t see the need to consider such wrenching moves. Chou dismisses Samsung’s dominant position among Android phones with the argument that big names come and go. “The market can change,” he says. “Once Nokia was like that. Once Motorola was like that. Once BlackBerry was like that.” But he could just as easily be talking about his own company, which appears to be skydiving and hoping its parachutes may still yet open.