HTC aims to avoid One X mistakes with new mobiles

HTC's One series of phones was well reviewed but has been outsold by Samsung's rival flagship handset

You know a company has problems when one of its executives calls to tell you it is facing "challenges" and needs to be "bolder".

It has not been a good year for Taiwanese smartphone maker HTC.

Profits have slumped on weak sales - the firm recently reported that revenues for July were 45% down on the year. At one point its share price was as much as 80% below April 2011's level, before it made a slight recovery.

A recent leaked memo from chief executive Peter Chou revealed the extent of his concerns.

"HTC used to be a company where we did things quick and reacted quick," he wrote.

"However, the fast growth from the last two years has slowed us down... we agreed to do something, but we either didn't do it or executed it loosely."

Second to Samsung

Such self-recrimination is usually only heard after a firm's products miss the mark.

What makes HTC's circumstances remarkable is that the firm's flagship handset - the One X - has been lauded since its release in April.

"It's one of the best mobile devices I've ever used," said influential tech news site The Verge in its review. Engadget went further, describing it as "a masterpiece".

UK gadget site, Pocket-lint was also fulsome with its praise, giving the device the same score as Samsung's top-selling Android device, the Galaxy S3.

"In real life they are very closely matched," Chris Hall, Pocket-lint's editor tells the BBC.

HTC's boss, Peter Chou, sent a memo telling staff to "kill bureaucracy" to make the firm more nimble

"The Galaxy S3 has better battery life... but the build quality and design of the HTC is better."

A popular top-end device is supposed to provide a "halo effect", boosting sales for an entire product range.

Yet data from IDC suggests that HTC shipped 9.1 million smartphones worldwide between April to June, a 24% drop on the year.

By contrast Samsung shipped 50.3 million handsets, a 173% rise.

So what went wrong?

"The market changed," says Jason Mackenzie, HTC's president of global sales and marketing.

"There's far fewer consumers who are going into the retail stores undecided about what they want to buy.

"Most of our research suggests about 70% of consumers are walking into the store already knowing what they want to buy... so we don't have the luxury in a significant percentage of times to be able to actually put the HTC One in the consumer's hands."

If this analysis is correct it all comes down to marketing - a problem for HTC which admits its budget is about a sixth the size of its South Korean rival.

"We cannot market like a Samsung - or Apple - where you've just got brute force tactics, carpet bombing the airwaves with TV commercials," says Mr Mackenzie.

"We've got to be more creative and act and speak like a challenger."

Skydivers

The problem, says one telecoms analyst, was that what budget HTC did have was spent on the wrong message.

"They had a rather spectacular but somewhat nebulous campaign of good-looking skydivers jumping out a plane in Arizona," says Ben Wood of CCS Insight.

HTC's TV advert featured skydiving smartphone users, but little information about the handset itself

"Historically with HTC the product had always been up-front and they had been very successful with that, but with this campaign they lost that.

"The other thing is that previously operators had liked HTC products, liked the HTC people and therefore made promises in terms of supporting them.

"But in the case of the One X it almost felt like the operators had been invited to a better party - the Galaxy S3 with Samsung's eye-watering marketing budget - and they dropped HTC like a stone."

Manoeuvre to Microsoft

Samsung may have become the dominant Android smartphone player, but the upcoming launch of Windows Phone 8 presents HTC with a fresh opportunity.

Although it already sells two phones powered by the operating system's predecessor - Windows Phone 7 - they were never the focus of its efforts. That has helped the operating system become more closely associated with Nokia - something HTC intends to change.

"We will have two flagships," says Mr Mackenzie.

"For Windows Phone 7 we didn't provide enough differentiation to have that flagship status between what we were doing on Windows Phone 7 and what we were doing on Android. When we look at the market we think that was a mistake from us and from our competitors as well."

HTC's relationship with Microsoft goes back 12 years to the Compaq iPaq - one of the first colour touchscreen pocket computers.

HTC plans to challenge the Nokia Lumia 920's claim to be the flagship Windows Phone 8 handset

Over the ensuing years it made several Windows Mobile devices sold under other brands' names and opened offices in Seattle nearby to the software firm.

But a decision to build the T-Mobile G1 in 2008 - the world's first Android phone - heralded a change in strategy.

Although HTC never broke ties with Microsoft, over recent years its links to Google have been stronger. A decision to recalibrate that position carries both risks and potential rewards.

"What HTC is hoping - as Nokia is hoping - is that there will be momentum around Windows Phone because of the huge amount of expenditure that Microsoft is making to market all the Windows 8 products," says Ben Wood.

"But I am concerned that consumers will find Windows 8 on PCs a rather daunting challenge because it's such a significant shift from Windows as they know it today, and therefore there's a danger of collateral damage to Windows Phone 8 if people decide to wait before jumping in."

HTC's decision to switch the focus of its marketing efforts to the internet, where it plans to educate users about what its devices do, may help - its strategy will become clearer after a press event in New York this Wednesday where it will launch new devices.

Certainly, one industry watcher says there is still time for a turnaround.

"HTC did a lot to bring Android into the mainstream and then Samsung catalysed on that to catapult into the top spot," says Pocket-lints's Chris Hall.

"But things go up and down in tech. We have seen the rise of Apple and the decline of Microsoft - going forward there's a chance that could switch, benefiting HTC in the process."