HTC Vows to Step Up Innovation

The head of HTC Corp. 2498.TW -2.38% said the beleaguered Taiwanese smartphone maker didn't market their products aggressively enough last year, but vowed to win consumers back by developing more innovative products.

HTC had one of its worst years in 2012, as Apple Inc. AAPL -2.55% and Samsung Electronics Co. 005930.SE -1.17% ate into its market share and profitability. Earnings in the third quarter dropped to the lowest level in about six years. The company's share price is now down as much as 80% from its record high back in 2010 when HTC was the top Android-based smartphone seller in the U.S. Now, some analysts say the company will slip into the red in 2013, a scenario unthinkable just a year ago.

"The worst for HTC has probably passed. 2013 will not be too bad," said Chief Executive Officer Peter Chou in an interview with The Wall Street Journal Friday.

"Our competitors were too strong and very resourceful, pouring in lots of money into marketing. We haven't done enough on the marketing front."

Mr. Chou, 56 years old, and Chairwoman Cher Wang co-founded what was called High Tech Computer Corp. back in 1997 as a contract manufacturer of personal digital assistants, or PDAs. It was one of the fastest-growing smartphone makers since HTC started producing its own branded phones in 2007. But its market share in smartphones has been slipping since 2010, losing out to Samsung's Galaxy smartphone series and Apple's iPhone.

According to market research firm Gartner, HTC's global market share slipped to 2.2% in the third quarter of 2012—the latest data available—from 2.7% a year earlier. But Samsung and Apple, and even Chinese low-cost makers such as ZTE Corp. 000063.SZ -0.31% and Huawei Technologies Co., were all gaining global share in an increasingly competitive market.

Mr. Chou dismissed many analysts' claim that HTC is stuck in the middle of the pricing spectrum. "Although we don't have as much money to counter [Samsung and Apple], the most important thing is to have unique products that appeal to consumers," Mr. Chou said.

He declined to be more specific on turnaround plans. The company is scheduled to release its preliminary fourth-quarter results Monday, and its guidance for the first quarter and beyond in late January.

Over the past few months, HTC has made some headway to mitigate its decline. It made China one of its key emerging markets, and thanks to the cooperation with the country's three largest carriers, HTC sold 2.8 million phones there in the third quarter, more than double the amount it sold in the second quarter of this year. That was about 5.8% of China's smartphone market, and it was more than the number of phones sold by Apple there in the same period. Its latest Butterfly smartphone series is also selling fairly well in Japan.

Some analysts said that HTC's latest settlement with Apple on patent disputes helped clear a major hurdle for the Taiwanese company to recapture its lost sales in the U.S. The dispute had led to customs review of all of HTC's imports to the U.S. between April and early December, hitting the rollout of what would have been its flagship One smartphone series in the U.S. that was originally scheduled for the second quarter.

Mr. Chou has also recently launched an overhaul to simplify the company's operations and stepped up marketing efforts, including hiring a new marketing chief who had served at Motorola Asia Pacific.

"One thing I'd learned from last year is to act fast and be responsive to market changes," Mr. Chou said. "We are being more flexible now. We are constantly fine-tuning our sales plans and position in various markets," he added.

Dale Gai, an analyst at Barclays, BARC.LN +0.25% said HTC has recently shown improvement in product lineup, marketing and sales execution, but it remains to be seen if its profitability will pick up this year.

"The smartphone market is already very commoditized, and it will be even more difficult for HTC to differentiate itself from other brands, especially in the high-end segment." Mr. Gai said. "HTC doesn't make its own components, so its falling market share actually weakens its bargaining power with suppliers and carriers."

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