International Marketing
Case Presentation

Founded in 1997 by Cher Wang, Chairwoman, HT Cho, Director of the Board & Chairman of HTC Foundation, and Peter Chou, President and CEO, HTC made its name as the company behind many of the most popular operator-branded devices on the market

Starting out with PDAs, HTC became the world leading manufacturer in smartphone category

In June 2006 HTC made the decision to brand phone under its own label, even though a lot of Taiwanese Manufactures and tried and failed.

The HTC brand name has a long way to go

Introduction

Where should HTC participate in this expanding value chain?What should be done to make HTC unique amongst all others?What should they do become a powerful global brand?Challenges Ahead

The landscape for phone software is changing dramatically with Apple, RIM, Google etc shocking the world with newer and improved products & also services like app stores. Thus HTC faces the following challenges:

Shift to Android platform

Launch Apps Store with revenue model similar to Apples

Technology Focus

Display Technologies

Mobile Web and Widgets

Better deals with service providers

Improve Utilization for Cost Reduction

Enter the mid-tier segment

Focus on Brand Enhancement

Recommendations

One of the founders of HTC, Cher Wang had a vision bring the power of mobile computing into the hands of people around the world. Opportunity came in 1997 when Microsoft had developed Windows CE, a new Windows based platform that could operate on smaller PC devices and hence HTC was bornInitial focus was on notebooks due to dearth of engineers skilled enough to make handheld devices. Peter Chou, a talented engineer with his small team were working on handheld devices and created the worlds smallest PC with Microsoft in 1998Wang invested additionally in the currently loss-making notebook business on the condition that HTC would exit notebook business and focus on handheld devicesHTC History

2002- manufactured a PDA, the iPAQ for Compaq. HTC was commissioned ODM for Compaq. HTC maintained its relations with Microsoft and released the XDA in 2002. The company recorded its first profit that year.With a new goal of making smartphones and wireless PDAs, HTC partenered with Qualcomm to become the 1st Taiwanese company with a 3G lisence In 2006, HTC decided to step out from behind the curtain and introduced HTC as a brand. The goal was to deliver an easy to use, holistic smartphone experience by drawing on our know-how in design and innovation. In June 2007 HTC Touch was launched the first finger-friendly touchscreen smartphone. Year after year, breakthrough touch-based smartphones were launched like the Touch Diamond, Hero, HD2, Legend, Desire, Mozart & Trophy.HTC History

Original Design Manufacturer(ODM) Business

Manufactured smartphones for branded handset companies

Little responsibility for sales, marketing or Inventor Management

Mobile Operator Business

Complementary Business by offering customized phones based on products designed by HTC to service providers such as T-Mobile

Increased Costs for HTC

R&D Costs (5% of Total Revenue)

Inventory Costs

Operators gained greater control on their Product portfolio

Early Success through contract with Vodafone, British Telecom and Orange

Made the Treo Smartphone in collaboration with Handspring

Business Segments

ODM and Mobile Operator Business resulted in profit margins as high as 20%

Technological convergence became the key trend influencing the mobile phone subsector, which saw the introduction of many new models offering streaming video, advanced camera features, MP3 capabilities and global positioning systems (GPS). Global volume sales reached nearly 886 million units in 2008.

Consumers' desire to listen to music, watch video, play games and communicate anywhere and anytime is transforming the global mobile phone sector. All-in-one portable communication/ entertainment systems complement to the growing consumer demand to be connected and entertained on-the-go.

The heightened demand for mobile phones has been stimulated in part by the continuing roll-out of advanced telecommunications infrastructure, such as Wi-Fi and 3G mobile phone technology.

The success of mobile phones continued to be determined by the availability and accessibility of online content, which in turn depends of the sophistication of the underlying telecommunications infrastructure.

Category Analysis

Mobile phones are now turned into a handheld computer that can be used as a media player, TV, Internet browser, GPS navigator, planner, digital camera

Nokia E75

Portable Electronics: Mobile Phones

Mobile Phones - Sales

Source: Mobile Devices -The iPhone Is Not The Only Game In Town, 2010, Gartner

Competitor Analysis

BuyersSuppliersRivalsWeakStrongStrongCorporate marketConsumers marketCarriers -AT&T OS providers -Linux, WMHardware makers Intel More companies entersStrong brands and financeNew EntrantsThreatEstablish mobile manufacture: LG, SamsungSoftware giants: Google, MSFTSubstitute ProductsEmergedVoIP SkypePDA phonePalmHigh

Price

LowNarrow Product-line Breadth Wide

Nokia

Motorola

RIM

PALM

Samsung

Apple

HTCThe industry is strongly competitive, with many vendors fighting to supply a concentrated niche market of high-end users that:favor weak buyer bargaining power (infrequently purchase, high switching costs, seller's reputation importance, seller's quality requirement).

challenge new entrants as strong barriers of technology, brand identity, and global scale economies

coordinate tightly with suppliers and strong supplier bargaining power (unique vendor-supplier collaboration)

face emerging substitute products (like internet-based services, PDA phone)

The industry's outlook is optimistic with potential future growth and, more important, industry just entering development stage of business cycle.

1. Shift To Android Platform

iPhone OS (Apple)BlackBerry OS (RIM)Window Mobile (Microsoft)Android (Google)Symbian (Nokia)

PlatformClosed

Closed

Open

Open

Open

Source CodeClosed

Closed

Closed

Open

Open

ProsEarly momentum

Data hungry early adopters

Powerful distribution channel

Strong reach (particularly in US)

Manufacturer / carrier agnostic

Manufacturer / carrier agnostic

Open source innovation

Massive global reach

Open source innovation

IssuesApple dependant

BB dependent

Distribution

Distribution

Late to market

Uncertain consumer demand

Limited reach in US

Distribution

Application ecosystem>3 lakh apps (~20% free)

More than 7 billion download

Fewer free apps

BB Application Center being developed for Storm

>18K apps

Windows marketplace launched

Android Market launched

$3.8M awarded in Developer Challenge

10s of thousands apps

>10K apps

Claims >90M installs over last 2 years

Nokia OVI store

Notes: 1. Artificially low given the wait for the 3G iPhone (5.3% market share in Q1)Smartphone OS Competitive Landscape

Company3Q10Units3Q10 Market Share (%)3Q09Units3Q09 Market Share (%)

Symbian29,480.136.618,314.844.6

Android20,500.025.51,424.53.5

iOS13,484.416.77,040.417.1

Research In Motion11,908.314.88,522.720.7

Microsoft Windows Mobile2,247.92.83,259.97.9

Linux1,697.12.11,918.54.7

Other OS1,214.81.5612.51.5

Total80,532.6100.041,093.3100.0

Source: Gartner (November 2010)The market is growing rapidly at nearly 38%, but Androids sales and share will explode while RIM and Apple will lag Android and the market. Android is expected to match the (current) BlackBerry numbers by 2013.Worldwide Smartphone Sales to End Users by Operating System in 3Q10 (Thousands of Units)

Year20072008200920102011

Wireless PDA 1%1%0%0%0%

Microsoft Platform84%89%61%53%51%

Android Platform0%6%36%47%49%

ODM14%5%3%0%0%

HTC's Revenue by Product category (Exhibit 9)Year20072008200920102011

Wireless PDA 0%-100%0%0%

Microsoft Platform6%-31%-13%-4%

Android Platform500%31%4%

ODM-64%-40%-100%0%

Market Share Growth Rate by MakerThey should focus more on android.

Handset Platforms

Transition to Android - Benefits

Smart Phone Sales 2009 = 250m

HTCs share 6% = 15m handsets

HTC sold 10m Windows based smart phones

License fees to Microsoft= $150 million

Switch to Android would save this cost

Operating Margin increases from 30% to 46%.

Nokia has a margin of 35% and Apple 34%

2. Launch Apps Store with revenue model similar to Apples

OEM Application Stores Comparison

AppStore - Comparison

Apps Store Increasing Value Chain

Mobile Application Stores

Gartner Prediction for Mobile Applications Paid up Mobile Applications to reach 90% from current 82%

Mobile advertising down to 10% from current 25%

Application stores becoming the focus for several players in the value chain

More Consumers will experiment with application downloads

Many Free Applications derive Revenue from Advertising

The value chain of application Stores will evolve to find the most profitable business model

Proposed Revenue Sharing model: 70% of revenue goes to developer, 30% to HTC

Ecosystems Apps much more than stores

3. Better deals with service providers

7

iPhone 4Black berrySony X10HTC suround

$729$500$400$350

$199$99$99$199

27%20%25%57%

iPhone - $99 to $199 729Blackberry $99 621Sony Xperia X10 $99 500HTC(Win Based) $199+ 720

4. Enter the mid-tier segment

Aspirational Brand image to be the BMW of Mobiles

Convergence of mid range phones(feature phones) with smart phones

Gross margin of Nokia 35%, Samsung 26%, HTC 30%

Should HTC also enter Manufacture of Mid Range Phones?

Smart Phones - Forecasts

Source: Mobile Devices -The iPhone Is Not The Only Game In Town, 2010, Gartner

Year 20072008 Q12008 Q22008 Q32008 Q42009 Q12009 Q22009 Q3

Apple 2.70%5.30%2.80%12.90%10.70%10.80%13.30%17.10%

Fujitsuna4.10%3.30%nana3.80%3%na

HTC 3%4%4.10%4.50%4.30%5.40%6%6.50%

nokia49.40%45.10%47.40%42.30%40.80%41.20%45%39.30%

rim9.60%13.30%17.30%15.90%19.50%19.90%18.70%20.80%

samsungnanana3%4.20%nana3.20%

others35.20%28.10%25.10%21.30%20.50%18.80%13.90%13.10%

Market Share by Maker (Exhibit 5 b)Year20072008 Q12008 Q22008 Q32008 Q42009 Q12009 Q22009 Q3

Apple 96.30%-47.17%360.71%-17.05%0.93%23.15%28.57%

HTC 33.3%2.5%9.8%-4.4%25.6%11.1%8.3%

Nokia -8.7%5.1%-10.8%-3.5%1.0%9.2%-12.7%

RIM38.5%30.1%-8.1%22.6%2.1%-6.0%11.2%

Market Share Growth Rate by MakerSo it seems that Market share growth rate for all the makers is cyclical in nature. Most plausible reason behind this fact could be short life cycle of smart phones because in smart phone industry latest is the hottest. HTCs R&D budget is already 5% higher than the competition so they should leverage that and come out with new models more often than their competition. With 2010s expected Market growth rate for smart phones to be 22% globally and 28% internationally, it gives them all the more reasons to increase their launch rate.

5. Improve Utilization for Cost Reduction

HTCAppleRIMPalm IncNokiaSamsung

COGS/Sales67.40%68.50%46.20%66.50%65.20%77.20%

Net Income Margin13.47.915.67.210.99

SG&A/Sales18.61315.51211.514

TATR1.551.150.641.231.511.1

ROA28.8314.959.9214.7617.36515.4

ROE31.3516.712.117.219.917.8

ROCE32.5517.517.918.619.618.8

Peer Comparison and AnalysisTATR suggest that there efficiency is good compared to peers however internal operating efficiency has fallen over the years. This probably can be attributed to FA investments. They should focus more on android.

YearTATRCA/TA

20041.61460.8608

20051.82300.9177

20061.58840.9368

20071.37570.9197

20081.32590.8788

20090.27960.8653

Average 0.896493

HTC's TATR Over the year

Industry average of global telecom providers (i.e 5 companies considered) is in the range of 67% -80% suggesting that it is well above the industry standards which could be due to the high inventory reducing the operating efficiency.(Note: Data for competitors taken from their balance sheet) They should focus more on android.

6. Focus on High-End Technology

Technologies HTC should focus on

Touch Screens will Dominate

7. Brand Enhancement

2006 - Peter Chou was appointed as the new CEO

Planned to enter the Brandwagon

Risks associated were:

Competition with the client

Scale and budget not available for Marketing

History of Failures of Taiwanese players

Strong Competitors like Nokia and Samsung

2007 Started its own brand operations by acquiring Dopod

Focused high end of "prosumer" market

Target "Build a reputation of making the BMW of phones"

The Road to Brand

HTC Current Strategy Brand Strategy

Focus on Smartphone Markets

Build up brand value through innovative products and friendly user interface

Fast Response to Market Change

Deliver Product Diversification to the Market

Brand PositioningUsing innovation to create a phone that fulfills the customer's needs

Slogan

You dont need to get a phone. You need a phone that gets you.

StrategiesFocus on Cusomer Service

HTC Customers complaints about their high-end models like HTC EVO 4G but they are majorly ignored

QualityHTC is known for its innovative and expertise hardware designing but with the increase in Number of phones per annum, quality is suffering badly

Focus on Customer NeedsCustomers find HTC Phones to be complex and difficult to use. Hence, focus should be done on enhancing user satisfaction

Branding Strategies

You are Different from you CampaignHTC SenseA quietly brilliant storyTom Tom & HTC Best of Class Navigation ExperienceHTC e Club, Providing value to CustomersHTC Tech Brand of the year (10)

Promoting strategiesDESIGN COMPETITIONS: Creating a strong brand community involving them in designing of applications. Such activities will help achieve two main benefits: it will reinforce HTCs strong connection to the brand community by hooking up youngsters early on to the brand to create brand excitement.

HTC can reinforces its brand image of always being on the forefront of innovation and design.

THINK GLOBAL, ACT LOCAL: A holistic approach to developing several strategies for different regions, but guided by one unified HTC brand image building strategy.Like sponsoring events most popular in that region such that they are in tune with HTCs branding strategy based on YOUPRE-LAUNCH STRATEGY TO BUILD ANTICIPATION AND GENERATE AWARENESS: Devices like smartphones sell mostly through the hype that they create before launch so much so that it is an event in itself. Premium prices can be used at the outset to maximise profits and communicate exclusivity, and then later as the reference price to discount in order to drive sales from less involved market segments. But most importantly, nothing creates better publicity than running out of product long before the initial launch ends.

Taiwan

one of the most vibrant and dynamic economies in Asia.

known around the world for its leadership in high-technology- ranked 2nd on The Economists 2008 IT industry competitiveness index

home to globally recognized technology brands including Acer, HTC and AsusTek

Acer:multinational computer technology and electronics corporation that manufactures desktop and laptop, PDAs, servers, storage devices, displays, and peripherals. Acer provides e-business services for business, government, education, and home users.

Topping the 2010 Top Taiwan Global Brands list for last 2 years

Worlds 2nd largest computer vendor, left behind HP

Asus: Multinational computer product manufacturer

Business Week's "InfoTech 100" and "Asias Top 10 IT Companies" rankings.

It led the IT Hardware category of the 2008 Taiwan Top 10 Global Brands survey with a total brand value of US$1.324 billion

Can Taiwan ever be synonymous with HTC? Is HTC on the right path?

HTC

Relatively new on the market as a brand

Only into PDA and smartphone manufacturing as against Acer & Asus who are established players in wider markets as well

Experience of selling high quality unbranded phones for years

The only Taiwanese high-tech vendor to have a license for using Microsoft products

HTCs Magic has been powered by Googles Android

In 2010 Top Taiwan Global Brands, HTC climbed from #4 to #2 closely behind Acer

HTCs comparative positionCurrently Acer & Asus seem to have an upper hand over HTC in terms of brand value but with Android coming in the picture, HTC has suddenly emerged a closer runner in the list of top Taiwanese global brands. Though it might take some time Taiwan becoming synonymous with HTC doesnt look like a far-fetched idea at all.HTC is the only Taiwanese high-tech vendor to have a license for using Microsoft products, but nevertheless Acer and Asus are also known to use e-mail, multimedia and some other functions patented by Microsoft.

HTC

Referenceshttp://www.htc.com/history/

http://www.phonearena.com/news/Microsoft-trying-to-prevent-Acer-and-Asus-from-adopting-Android-through-royalty-fees_id14177

http://www.fastcompany.com/1615647/htc-continues-to-assess-making-their-own-smartphone-os-or-buying-one-from-palm

http://www.brandingstrategyinsider.com/2010/07/marketing-lessons-continue-to-flow-from-apple.html

http://moconews.net/article/419-htc-launches-multi-million-dollar-ad-campaign-about-you-to-become-house/

http://www.marketingminds.com.au/branding/apple_branding_strategy.html

http://buysample.taiwantrade.com.tw/ORG/accessibility/news.do?Method=news_detial&informationId=30061

http://blog.gsmarena.com/htc-makes-a-switch-in-brand-identity/

http://blog.dk.sg/2009/10/30/htc-unveils-new-brand-positioning-and-htc-tattoo/ http://reviews.cnet.com/smartphones/htc-droid-incredible-verizon/4852-6452_7-34064029.html

http://www.htc.com/www/product.aspx?type=1#navigation

http://www.xda-developers.com/feature/the-htc-aria-or-how-htcs-marketing-strategy-is-changing/

HTC is the only Taiwanese high-tech vendor to have a license for using Microsoft products, but nevertheless Acer and Asus are also known to use e-mail, multimedia and some other functions patented by Microsoft.

THANK YOU

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Demand for Mobile Phones

Mobile Apps Store

TATR