HTC bets on cameras, music to recover smartphone mojo

BARCELONA/TAIPEI Mon Feb 27, 2012 1:35am EST

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BARCELONA/TAIPEI (Reuters) - Taiwan's HTC Corp has turned to advanced cameras and music functions for a new range of phones at the centre of its bid to recover from a rapid fall from grace in the tough and fickle smartphone market.

The world's No. 5 smartphone maker launched the HTC One series of models at the Barcelona Mobile World Congress on Sunday, taking the fight to Samsung Electronics and Apple Inc with fast graphic chips and advanced music and photography functions.

It is a fight that HTC was losing at the end of last year, when its sales slumped and investors dumped its shares on concerns the firm had lost its edge. Analysts said the new devices represented a pragmatic choice for a company that lacks the resources of its deep-pocketed rivals.

"HTC seems to have learned from mistakes it made in 2011," said Malik Saadi, Principal Analyst at Informa Telecoms & Media.

"The company aims now to concentrate on what they do best and have built their brand on: bringing innovation through design of premium devices rather than spreading efforts across all segments of the market."

Rapid innovation was the hallmark of HTC's lightning rise from obscure contract maker to purveyor of must-have gadgets. Its shares more than tripled in the 14 months to April 2011 and sales grew fourfold in 1- years as it rode a wave of popularity.

But an equally swift fall at the end of last year, as its phones failed to keep up with Apple and Samsung, saw HTC forced to issue a profit warning and its stock price plunge 42 percent, making it the worst performer among global smartphone companies.

Amid investor fears it would follow Finland's Nokia in a sharp downward spiral, HTC said earlier this month that revenue may fall as much as 36 percent for the first quarter, much worse than analysts' expectations.

One user of HTC phones said the fun factor was missing.

"When my contract comes up, I'm thinking of switching to Samsung's Galaxy Note because it doubles up as a tablet and looks quite fun to play around with," said Phoebe Leung, a software business analyst in Hong Kong who has been using HTC Aria over the past year or so.

Employees felt the sting of the downturn too, with some saying they felt let down by the company for its slide and lack of endeavor to bring in real innovation.

"It's not as fun working here as I expected," one engineer told Reuters.

Others said the company had tightened up on bonuses and had told staff that spending must be controlled, a change from a previous habit of lavish spending.

Its focus has been on turning around its fortunes, and senior management has said it will stick to its strategy of innovation for the high-end market and is confident the new models will get it back on track.

MUSIC AND PICTURES

The HTC One series consists of three models, the One X, One S and One V, running the latest version of Google's Android software. They have fast processors for graphics and either polycarbonate or metal cases HTC says are harder and more resilient than standard ones.

The phones feature HTC's ImageSense camera technology that it says offers photography on a par with traditional digital cameras, including fast autofocus and low-light shooting. They also have photo storage and sharing software.

Music features include integrating Internet radio and using audio technology from Beats Electronics, which HTC bought last year, for games as well as music.

HTC said 144 mobile operators -- the widest carrier support for the firm so far -- have agreed to carry HTC One range models starting from April.

"The products look competitive, but HTC executives will be looking over their shoulders nervously to see how these new devices stack up against rival Android smartphones also being announced at the show," said Ben Wood, head of research at CCS Insight.

Others note also that most mobile vendors are building their phones around similar themes, so it is harder to differentiate models. Companies will need to look to software, innovation, distribution and building partnerships to stay ahead of the game.

"HTC's strategy to streamline its branding and to offer fewer, better-differentiated products is a reaction to both market forces and engineering necessity," said Tony Cripps, principal analyst at Ovum.

"Its decision to focus on perfecting core smartphone functionality around camera and music playback is an extremely pragmatic one."

HTC immediately faced a challenge from No.1 maker Samsung, whose mobile chief said ahead of the Barcelona show that it aimed to nearly double its smartphone sales in 2012 from last year.

Meanwhile Apple is likely to release the next version of its iPhone this year, and up and coming challengers such as China's Huawei are also breathing down HTC's neck, with Huawei releasing what it says is the world's fastest quad-core smartphone at Barcelona.

"HTC's industrial design is similar to before, there's no breakthrough, but its hardware is closing the gap with Samsung and Apple," said Roxy Wong, analyst at Mirae Asset Management in Hong Kong, noting the new cameras and screens in the phones.

"The new phones will not serve as major turnaround for the company. If it sells with more attractive prices, it could see a gain in market share but not profitability."

Wong added that HTC's move to unify its products around a single brand name, as Samsung does with its Galaxy devices and Japan's Sony Corp does with Xperia, is a good move because it would be easier for consumers to remember its phones and their features.

However, HTC is likely to stick to its "high-end brand" strategy to offer full user experience. One HTC source with knowledge of pricing said the new phones will be priced similar to Samsung's ones with similar specifications.

"HTC phones this year will not be cheap," the source said.

HTC's shares will resume trade on Wednesday, February 29, when the Taiwan stock exchange reopens following a two-day public holiday.

They last closed at T$629, well off their peak of T$1,238.10 in April last year, a price that had made Chairwoman Cher Wang top of Forbes' Taiwan rich list last year.

(Additional reporting by Lee Chyen Yee in Hong Kong; Writing by Jonathan Standing; Editing by Marguerita Choy and Alex Richardson)

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