with HTC CEO Peter Chou
In a few short years, Taiwan's HTC has transformed itself from an obscure, white-label handset maker into one of the world's leading smartphone vendors. According to ABI Research, HTC grew its shipments from 3 million in the second quarter of 2009 to a whopping 5.5 million in the second quarter of this year, clocking year-on-year growth of more than 80 percent--better than any other top-10 handset vendor in the second quarter. Further, according to research firm Gartner, HTC was the world's eighth largest global maker of handsets--smart or not--in the second quarter, commanding close to two percent of the global handset maker.
HTC's first big break in mobile came in 2002 when it built the world's first Windows smartphone, for European operator Orange. During the next few years, the company managed to carve out a position in the blooming smartphone field with a range of Windows-powered gadgets. But it was the launch of Google's Android that propelled HTC into the mainstream; the company built the world's first Android phone, the G1 for T-Mobile USA, and has since relied on Android to power a range of high-end phones.
As HTC built out its Android play, the company concurrently transitioned from an ODM (building phones for other brands) into an OEM (building phones carrying the HTC brand). HTC's "Quietly Brilliant" ad campaign served as the flashpoint for its direct-to-consumer push.
Today, HTC is widely considered one of the world's leading smartphone designers. The company, along with fellow Android promoter Motorola (NYSE:MOT), accounted for more than 50 percent of all the Android phones sold in the second quarter, according to ABI. And HTC is poised to renew its Microsoft partnership with the release later this year of phones running the software giant's new Windows Phone 7 platform.
Despite its successes, HTC faces a range of challenges. The company must continue to fight off advances from the likes of Research In Motion (NASDAQ:RIMM) and Apple (NASDAQ:AAPL), as well as attacks by new market entrants such as Acer, Dell and Hewlett-Packard--some of whom also are using Android to crack into mobile. A critical element of HTC's strategy is its Sense user interface, software the company lays over the top of Android and Windows Mobile and uses to separate its products from the rest of the field. But HTC's Sense faces challenges too, as Google and Microsoft rush to improve and unify their respective platforms.
As HTC enters the critical fourth-quarter holiday shopping season, FierceWireless Managing Editor Mike Dano discussed with CEO Peter Chou the company's products, strategy and long-term vision. This interview was edited for clarity.
FierceWireless: HTC has shown dramatic growth during the past year. To what do you attribute this success?
Chou: Well I think it's probably all about HTC's focus on smartphones. The whole company has been focusing on this vision since a decade ago, how mobile will converge and change people's lives and let people enjoy more time in their lives. And we were very interested in this idea, and came up with a strategy of focusing on innovation and creating innovative technologies to facilitate this vision. And we thought innovation is so important because innovation will create differentiation. And innovative technology is also very important because a lot of times without leading technology and without capability the vision vanished. And so that's why we've been working on this vision strategy for so long.
I think that's probably the main reason, because at HTC we've been working on this every year, creating better radio technologies [and] always pioneering on the leading-edge technologies. We were the first company to ship [the] 3G smartphone, 4G smartphone, Windows smartphone, Android smartphone, and a decade of that experience actually came all together last year. And it helped us to [be] No. 1 [and] deliver a very successful product with quality and with authentic design. And also a decade of experience helped us to get credibility in telecom industry, and make HTC['s] connection and relationship with [the] mobile operator much stronger. And, of course, one more thing started from last year was we had increased our global marketing activities, with "Quietly Brilliant" and "You" campaigns. And together with mobile operators' strong support, and increased marketing activities, [the] HTC Sense user experience [is] getting more popular and appreciated more in the market: All of this combined together increased HTC's brand awareness.
Chou: At HTC, our goal is to provide those forecasts quarterly, and this year in the first three quarters we had pretty good growth. I think more than 60-70 percent of revenue growth. Actually, in this quarter, Q3, we should be having 100 percent growth in terms of revenue growth and I think volume growth will exceed 100 percent as well.
FierceWireless: And that's year-over-year?
Chou: That's year over year. 100 percent revenue growth and more than 100 percent volume growth as well. That's the number we're offering. We're not offering next year's numbers. Or the whole 2010 number. In 2010 I believe we should do pretty well. But the final number will be available Q4.
FierceWireless: Can you talk about what's selling well? Can you give me a sense of where the growth is coming from? Is it in Android? Is it a specific model?
Chou: This year is a transition year for Windows Phone. I think that this year is becoming the year for Windows Phone, and I think this is a significant milestone for Microsoft, coming out with Windows Phone 7. And for the whole year, of course, because this is a transition period, our Android models are a lot more. However, we think in the future Windows and Android products should sell well as well.
In terms of models, I think HTC Droid Incredible, HTC Evo from Sprint, and some models on T-Mobile, like the myTouch, and we have the launch of the G2, these are quite significant volume contributors for U.S. market. And in Asia, HTC Desire and HTC Legend and Wildfire are selling very well as well across Europe and Asia.
Our strategy is to not completely rely on one single model. We are creating a portfolio to let the customer in different regions decide what they want and what they like. Our strategy is more of providing customer preference so they can also differentiate for them, so we are not providing just one model for everybody. HTC wants to diversify our business so we are not vulnerable to one single model or one single customer. We are doing our business quite broadly across the world in the U.S., Europe and Asia, and working with more than 70 mobile operators across the world. And we hope we can continue to balance product portfolios across regions and technologies so we can attract all kinds of customers.
FierceWireless: Does HTC have any plans to expand the number of operating systems it uses? Are there any plans to develop MeeGo phones or Symbian phones, or are their other platforms you're considering using?
Chou: As [is] the nature of innovators, we have people who are always looking into the future to understand that. We make careful decisions on what we want to use and what we want to do. At this moment we are only focusing on Windows Mobile and Windows Phone and Android.
FierceWireless: Let's talk about the forthcoming HTCSense.com website. It is an effort by HTC to get into the services business, such as providing the ability to remotely locate and wipe users' phones. Does HTC plan to expand the number of services it offers? Also, does HTC plan to get into the content delivery business, like Samsung recently did with its Media Hub?
Chou: Last week we introduced two new products in Europe, in London. [They are] called HTC Desire HD and Desire Z, and we also introduced the new HTC Sense and a series of connected services that we call HTCSense.com. HTCSense.com is, of course, a major step for HTC as a brand. What we tried to do is we tried to extend HTC experience and HTC Sense experience beyond the products. The idea is more to make the HTC Sense experience broader and more reliable. So it's not so much about the content business. Of course, we definitely can work with some content partner, aggregator, to offer that, but the idea is more of to get HTC customer to have a much better experience from online and from their PC so they can manage, control and customize their experience from either on their phone or from PC.
FierceWireless: So does HTC have any plans to get into content delivery, like offering movies and TV shows, like an iTunes program?
Chou: No. We try to differentiate ourselves, and we would like to do that through our own offerings. We can work with our partners, like Google and Microsoft, and we don't have to duplicate those offerings if they are already there, and what we try to offer is something unique that we do.
FierceWireless: Let me switch gears and talk about HTC's Sense UI. First, are we going to see that on HTC's Windows Phone 7 products?
Chou: Not initially. Because just like when we first introduced our Android product, initially we don't have time to put things on top of that. Over time we can innovate on top of that and provide some HTC experience.
FierceWireless: So do you expect HTC to provide a full Sense UI experience on Windows Phone 7 sometime in the future? And if so, when would that be?
Chou: I don't think we would do the complete Sense UI on Windows Phone 7. However, I anticipate we will innovate differently to improve the experience and to get some HTC unique and differentiated experience on Windows Phone 7 in the future.
FierceWireless: But it would be fair to say that HTC will continue using Sense UI on its Android phones?
FierceWireless: I wanted to ask you about Android specifically. There's been some criticism of Android lately, with vendors having difficulty keeping up with Google's updates to Android. Do you have any comments on the pace of Google's Android updates? Does Google need to slow that down?
Chou: I think this is just the nature of developments in operating systems. Because Google wanted to expedite the innovation phase to offer [a] better [OS] to the customer quicker. I think that's OK. That is not a huge challenge for us. As you can see, at HTC we are offering the Froyo 2.2 version to some of our models less than a week after their release. I think over time these types of issues can be managed and improved. I think every company [has] a little bit of their own way of doing this, and HTC, as a company, we try to be nimble and try to expect it.
FierceWireless: Will we see the Sense UI on Android 3.0?
Chou: Sense UI will continue, but I can't say things for future. We usually don't specifically talk about what will be the future. Sense will definitely continue.
FierceWireless: Let me switch gears and talk about tablets. A lot of companies have decided that tablets are the next big thing. What are your feelings about tablets, and does HTC plan to release a tablet device?
Chou: As the nature of an innovator, we are looking into all kinds of possibilities. For us, tablets [are] one area where HTC can look into that. However, we also are very careful to make sure that when we have something, we have a unique offering, a very attractive design--instead of rushing out just to get a product. So at the moment we have nothing to be able to share concretely. We are in the process of looking to see how we can work out that type of device.
FierceWireless: I'm assuming HTC is looking at LTE technology. Can you say if and when HTC will build a phone using LTE?
Chou: I think LTE should be coming next year, 2011, and we are, of course, looking to have a product next year.
FierceWireless: So HTC will have an LTE phone next year?
FierceWireless: And I suppose you can't say any more than that? Whether it's going to be an Android phone, and when during the year you'll release it?
Chou: That's all I can say right now.
FierceWireless: HTC has had a lot of success on the high end of the market with smartphones. Does HTC have any plans to expand into feature phones or low-end phones?
Chou: We are actually extremely focused on smartphones. And I think HTC is about focus, instead of trying to do too many things and unconsciously just wanting to get market share without understanding its real value. We don't really think we have a lot of value going to the feature-phones segment, and we believe the future is about smartphones. And we believe the smartphone is the mainstream phone for the future. And smartphone market share is growing.
However, we are definitely working on some mid-end or entry-level products. Unfortunately, it is not in the U.S. yet. For example, HTC Wildfire is a low, entry-level product, and it's selling very, very well in Europe and Asia. And definitely we would like to create a product portfolio for mid-, low-, high-end, keyboard, non-keyboard, multiple form factors. However, this will only be focusing on the smartphone category.
FierceWireless: I'm wondering how HTC is approaching the market, and that's often defined by a company's competitors. So which companies would you say are HTC's top three competitors? Which companies represent the top threats to HTC?
Chou: Competition is coming from many directions. It's coming from those top, leading companies--like Apple, Nokia, Motorola, Samsung, LG--and also coming from new entrants like some [of the] PC companies. And also [it is] coming from Chinese companies. So I think the competition is coming from everywhere. And sometimes it could even be coming from unexpected, disruptive industries that you would never know. It could be coming from a small software company.
What is important is for HTC to really work hard, and be innovative, and making sure we have unique offering, and providing a strong design. And we have all the capabilities to bring about high-quality design and a holistic experience, and working closely with our partners, mobile operators. I think that is more important for us than worrying about the competition. It's not that relevant, actually. We just need to be working hard ourselves. Making sure we are doing a good job ourselves. And really offering unique and differentiated and innovative and exciting products for our customers. That is more important.
FierceWireless: The last thing I want to ask you about is the business model HTC employs. HTC got its start by offering white-label products, where there was no HTC brand at all. Recently, HTC launched a significant branding campaign, and is working to expand its branded offerings. So my question is: Does HTC plan to sell all its phones with the HTC brand, or will it continue to develop white-label products where appropriate?
Chou: We have decided to develop the HTC brand as a consumer-facing brand. We saw the opportunity where smartphones are becoming mainstream. And we want to make sure we will be one of the major players in the smartphone segment. And HTC is an innovator, HTC is about keeping the innovation going out, so without having a brand identity it is quite challenging for us to communicate our innovation. And so that's why we have decided to develop HTC own brand.
Our brand awareness has greatly improved. For example, HTC is somewhere 10-13 percent last year in the U.S., and now it's more than 40 percent right now. We have a very similar situation is Europe and Asia. For example, we were somewhere 6 percent in U.K. last year, and now it is 46 percent. And we [were] somewhere [around] 10 percent in France, and now it's somewhere [around] 40 percent in France right now. So our brand awareness is getting a lot of good progress.
Most of HTC products right now are HTC brand. So we are definitely moving everything to HTC-branded products.