HTC has the misfortune of always announcing its quarterly results at the same time as Samsung, and at the start of the reporting season, which in recent years has meant full focus on the contrast between its ailing fortunes and the rise and rise of its Android rival. This season has been par for the course, with the Taiwanese vendor recording its first-ever quarterly net loss, while its Korean rival turned in a record Q3 operating profit of about KRW10.1 trillion ($9.4bn), beating market estimates. The results, preliminary at this stage, were particularly driven by Samsung’s success in emerging markets and its ability to create devices for every conceivable price point and regional variation, extending its key Galaxy brand far and wide.
Midrange devices such as the Galaxy Golden and Galaxy S4 Mini were strong in gaining market share in China and India, markets where Apple often falls outside the top three in handset sales and where Samsung has powerful channels and operator relationships, as well as leveraging its economies of scale and its massive control of its supply chain, to reduce its costs in these budget sensitive areas.
Lee Seung Woo, an analyst at IBK Securities, pointed to rising fears that, despite the debut of the dual-track iPhone family, Apple has too few devices to stem the loss of share to Samsung over the years. He commented to Bloomberg: ‘Samsung’s identity is all about speed, which is something that no one can easily mimic. The market is changing extremely fast.’
Although analysts were talking up the midmarket devices, Samsung itself will not break out the results of its different divisions until it reports audited figures late this month. It said that, for the group as a whole, sales were about KRW59 trillion in its third quarter, up 25% year-on-year, with a record operating profit mainly driven by the mobile phone operations. Analysts estimate that it will have sold 85m smartphones in the third quarter, up from 75m in the second quarter, because of the midrange and S4 launches, and continuing strong sales of existing products such as the Galaxy S3. The Mini and S3 are outselling the S4, and the iPhone, in emerging markets such as the Middle East, according to HTC.
By contrast, HTC ‘ also in preliminary announcements ‘ posted revenue of NT$47bn in the quarter, its eighth successive quarterly revenue decline. Factors included, according to critics, excessive focus on the high end with the HTC One, and the failure of its midrange ‘Facebook phone’, the HTC First, in the US. The HTC One has received strong reviews but is too expensive for most emerging market customers, and has been hit by component shortages, which meant it ended up shipping at the same time as Samsung’s heftily promoted Galaxy S4, rather than gaining a shipment window ahead of that juggernaut and the latest iPhones.
‘HTC needs to figure out if it just wants to focus on the high end market or the mid- to low end segment, and right now it is missing out on both,’ Wang Wanli, an analyst at CIMB Securities, commented. HTC may find itself falling back on its old ally Microsoft, to improve its differentiation and share, particularly as Windows Phone appears to be gaining ground at last, especially in Europe. HTC is reported to be considering a proposal by Microsoft to add Windows Phone to its Android smartphones, with little or no licensing fee, in order to get the option of WP8 onto high profile devices like HTC One, rather than just on second string products.