HTC Continues to Grow

High Tech Computers (HTC), developer of mobile phones and smart phones, is one of Taiwan's amazing companies. If you have been sleeping under a rock, an HTC smart phone is the base for the Google Android smart phone.

The China Economic News (CENS) reported earlier this month HTC is doing incredibly well this year. According to CENS:

The Taiwan-based High Tech Computer Corp. (HTC), a world-caliber supplier of own-brand handsets, forecasts its annual revenue to smoothly hit a historical high of NT$150 billion for 2008, based on a strong revenue growth of over 30% realized in the past eight months of this year, according to Cheng Hui-ming, HTC`s chief financial executive.

Thanks to its hot-selling HTC series smartphones, HTC is expected to post aggregate revenue of NT$105.3 billion for the first three quarters of this year, and score revenue NT$48.8 billion in the fourth quarter, thus achieving annual revenue of about 154 billion for entire the year, sharply up from NT$118.6 billion posted last year.

In the meantime, the Wall Street Journal (WSJ) has an excellent article on the advent of the Smart Phone and the rise of new providers. The WSJ observes:

The U.S. market for smart phones continues to be a tough nut to crack for the established handset makers.

Top-tier players such as Nokia Corp., Motorola Inc. and Samsung Electronics Co. control 80% of the market for cellphones but have struggled in the U.S. to sell smart phones -- phones that allow users to surf the Internet, send email and download music, among other advanced functions.

Often caught up satisfying carrier demands, handset makers have been slow to bring out products in this segment, opening the door for the likes of Research in Motion Ltd. and Apple Inc.

This could prove a crucial error for the traditional players, as they cede the fastest-growing and most profitable slice of the market. "They're really missing out on a critical high-end segment," said Hugues De La Vergne, an analyst at Gartner Inc.

It could be painful for the large handset companies because their strategies are predicated on selling more-expensive high-end phones to complement sales of cheaper mass-market phones, propping up the companies' overall margins. But consumers are turning away from high-end feature phones, which offer one or two special functions, and opting instead for a full-blown smart phone.

Smart phones are where the growth is. More than 35 million smart phones are expected to sell in the U.S. this year, up 77% from a year ago, in a market worth $11.8 billion, according to Gartner. By 2012, the market will be worth $29.2 billion, with nearly 100 million units sold.

Later on, the WSJ comments on HTC saying:

It is no coincidence that Taiwan-based High Tech Computer Corp. has decided to start pushing its HTC name after years of making unbranded phones for the carriers -- its Touch Diamond is among the most highly anticipated devices.

HTC is working with Google Inc. to bring its first Android smart phone out, dubbed Dream.

The newer players can be more nimble and solely focus on the smart-phone market. But the handset makers aren't standing still. Both Motorola and Samsung vow to expand their smart-phone offerings in the second half and next year. "The iPhone has woken the entire industry up in a big way," Mr. Hurd said.

What happened here? It seems the traditional players didn't really keep taps on the market. They never anticipated new entrants (HTC), they never anticipated subsitute products (Smart Phones) and the buyer power was too strong (the carriers). Three of Porter's five forces went against them and they clearly didn't anticipate the impact of the smart phones on their business. There is a lesson here that companies really do need to keep their eye on the ball to see what new products and technologies are becoming available and how those technologies and products will affect their business.

Here in Taiwan HTC is a highly respected company and right now they are going from strength to strength.

CENS: HTC Eyes Record Revenue of NT$150 B. for 2008
WSJ: Smart Phones Challenge Firms

Motorola Affecting Downstream Suppliers

Taiwanese suppliers to Motorola are being heavily impacted by Motorola's poor performance. Motorla's shares recentely tumbled to a 52-week low on Friday to $8.98, 43% down from the a beginning of the year according to IT Portal. IT Portal also says:

Its [Motorola's] mobile phones, which once made up almost a quarter of the global market, are now accounting for less than 1 in every 11 handsets sold and has been overtaken by Samsung electronics; meanwhile smaller competitors like LG Electronics are also catching up.

China Economic News (CENS) points out that this has severely affected Taiwanese suppliers. CENS reports:

In the first quarter of this year, Motorola shipped only 27.4 million mobile phones, sharply down 40% from 45.4 million units posted a year earlier. This has heavily undermined the business operations of its Taiwanese contract suppliers, including Compal Communications, Chi Cheng, Largan Precision Co., Foxconn Technology Group, Silitech Technology Corp., Merry Electronics Co. and Unimicron Technology Corp, especially Compal Communications and Chi Cheng, which both have over half of their total revenues come from sales to Motorola.

One company that has felt the pain of Motorola's non-performance is Wintek. In Q1 2007 Wintek were severely affected by Motorola's non-performance and what Digitimes calls "Motorola's inventory issues." However by diversifying both their client and product portfolio they were able to grow their March sales by 31.97%. According to Digitimes:

Since then (Q1 2007), Wintek has actively developed other applications, such as touchscreens, PNDs and digital photo frames, and has acquired its second 3G LCD panel line from HannStar Display. Its first 3G line also came from HannStar.

With the addition of new orders and new clients, Wintek was able to reduce Motorola's proportion in its first-quarter sales, industry sources said.

Despite this growth in sales, Wintek's stock has also suffered some pain over the last year. From trading at nearly NTD50 per share, the stock dropped to nearly NTD26 and is now trading at around NTD30. The effect of Motorola's non-performance on Taiwan companies does seem to be large. It seems the other companies will have to try and do what Wintek did and find new clients and new growth markets. Here is hoping they succeed.

Article 1: Motorola shares fall to their all time low, could be downgraded
Article 2: Motorola`s Tumbling Sales Hurt Its Contract Suppliers in Taiwan
Article 3: Wintek March sales grow almost 32%