Digital Theory: After LG, will HTC be the next to exit the smartphone business?

LG Electronics officially announced its exit from the smartphone business a few days ago. In a regulatory filing, LG Electronics said its mobile communications division will no longer produce and sell mobile phones, citing the division's long-term sluggish performance and fierce competition in the industry.

LG's exit from the smartphone business is a pity, as LG's smartphone business was once a success. In 2008, LG Electronics said its actual global mobile phone sales exceeded 100 million units, making it the world's third largest mobile phone manufacturer.

Similar to LG's situation, the smartphone business of another manufacturer, HTC, is currently in a half-dead state, which makes people feel that HTC is likely to follow in LG's footsteps.

HTC's smartphone business is full of legends. HTC started out as a PDA manufacturer, and later transformed into a smartphone manufacturer. Through cooperation with Google and operators, HTC released the first smartphone pre-installed with the Android operating system - T-Mobile G1 (codenamed HTC Dream).

Riding on the rise of the Android operating system, HTC's smartphone business reached its peak in 2011. That year, HTC's smartphone sales reached a staggering 43 million units. HTC ranked fourth in the global smartphone market and first among Android phone manufacturers.

As the saying goes, everything rises and falls. 2011 was also the year when HTC's smartphone business began to decline. That year, HTC lost the lawsuit against Apple in the United States over patent infringement, and the price was a ban on the sales of related products in the United States. This made HTC's smartphone business never recover from that.

By 2017, data showed that HTC's losses had reached 3.8 billion yuan, and it had to take action on its smartphone division. After selling half of its engineers to Google, HTC's smartphone business began to fall into turmoil. The head of the smartphone business resigned, the Shanghai mobile phone factory was sold, global layoffs occurred, and departments were merged.

Although HTC has not explicitly stated that it will withdraw from the smartphone business, the influence of this business can basically be ignored. The 2020 Global Smartphone Report released by Counterpoint shows that HTC's smartphone business has fallen out of the top ten, and is inferior to brands such as Transsion and LG.

Image source: Counterpoint

The decline of HTC's smartphone business is mainly due to the following reasons:

1. HTC smartphones lack sufficient technical support. HTC's defeat in the patent war with Apple has become a symbol of the decline of HTC's smartphone business. This reflects the lack of HTC's technological accumulation in the field of smartphones. After all, HTC started out as an OEM.

2. HTC has no determination to do well in the smartphone business. Since HTC lost the lawsuit against Apple, HTC has not spent its main energy on the smartphone business, but instead bet on VR and launched HTC Vive in 2015.

Although Wang Xuehong strongly supports HTC Vive, it has not improved HTC's revenue. Financial report information shows that HTC's annual revenue in 2020 was NT$5.81 billion (RMB 1.33 billion), a year-on-year decline of 42.03%, an operating rate of -110%, and a loss of NT$6.02 billion after tax.

3. HTC’s smartphone business strategy is not flexible. HTC’s smartphones have always been focused on the high-end market, and it sees Apple and Samsung as its competitors. This strategy was not wrong when HTC’s smartphone business was flourishing.

However, when the smartphone business was declining, HTC still implemented this strategy, resulting in HTC's mobile phones having "low configuration and high price". This put HTC's mobile phones in an "awkward" position. In the high-end market, it was defeated by Apple and Samsung, and in the mid- and low-end market, it could not sell as well as Xiaomi, OPPO, vivo, etc. Over time, the original user base of HTC mobile phones was lost.

Some people ask, if HTC starts to focus on the smartphone business from now on, will it still have a chance? I think it is futile.

Wu Dezhou, former president of ByteDance's New Stone Lab and current global CEO of Sharklet, talked about his views on the current smartphone industry. Wu Dezhou pointed out that the mobile phone industry has evolved into a competition between supply chains and brands, and small brand manufacturers really have no advantages at all.

Li Nan, former senior vice president of Meizu Technology, said that the future of the mobile phone industry will be a war between large groups and sub-brands, and independent brands in the niche markets will indeed have little chance.

Competition in the smartphone industry is fierce, and has evolved into a fierce fight among giants. This is very unfavorable to HTC's smartphone business, which is on the decline, so it is only a matter of time before HTC withdraws from the smartphone business.