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HTC Corporation
HTC
Industry Forces– High growth, high-margin– Intense competition– Competitors hogging value
chain
Customer Centric Strategy
Forward Integration
1
2
Portfolio Rationalization
3
Recommendations
Moving from an Unknown Phone Maker to a Differentiated Cost Leader
Core Competencies– Innovative ODM– Unknown Brand– Premium Priced Phone
Maker
Compelling Situations– Shifting needs of target customers– Un-captured values in value chain– Lack of economies of scale
Differentiated Cost Leader PositionD
iffer
entia
tion
Cost Leadership
highlow
low
high
Apple
RIM
Samsung NokiaHTC
HTC
Customer Centric Strategy
Buyer power influences the Market Trend
New Entrants (Low)
• Capital Intensive• Brand Awareness
Substitutes (Moderate)• Undifferentiated Products• Service providers control
switching costs
Supplier Power (Moderate)• Multiple
software/hardware providers
Buyer Power (High)
• Product Variety• Easily accessible
information/products
Existing Competitors(High)
• Intense Rivalry• Complements differ -
entiate product
Demand forecast confirms our belief
2007 2008 2009 2010 2011 20120
50,000
100,000
150,000
200,000
250,000
300,000
350,000
Worldwide Forecast for Smartphone Shipments
Buyer power influences the Market Trend
Customer Segmentation
Sophisticated Consumers
Large Enterprises
Casual Users
Apple
RIMSamsung, LG, Nokia
HTC
Prosumers HTC operates mainly in
the higher end of the ‘Prosumer’ segment
Product features and core capabilities best suited for entire Prosumer segment
Two pronged growth approach 1. Widen base to entire
prosumer segment. Matches capabilities + remains differentiated
2. Increase size of segment over time
Customer Centric Strategy enables HTC to become a differentiated brand
Diff
eren
tiatio
n
Cost Leadership
HighLow
Low
Hig
h
Apple
RIM
Samsung NokiaHTC
Limited Forward Integration Strategy
Smart phone Industry Overview
New Entrants (Low)
• Capital Intensive• Brand Awareness
Substitutes (Moderate)• Undifferentiated Products• Service providers control
switching costs
Supplier Power (Moderate)• Multiple
software/hardware providers
Buyer Power (High)
• Product Variety• Easily accessible
information/products
Existing Competitors(High)
• Intense Rivalry• Complements differ -
entiate product
Competitive Landscape
Design & Mfg.
Operating
SystemBrand Owner
Software
Services
Network
Operators
Apple X X X X
Nokia X X X Planned
Rim X X X X
Palm X X
Samsung X X
HTC X X
Google X X X
LG, Sony, Motorola
X X
Forward Integration to capture more value
Handset Manufact
urer
Brand Owner
OS Provider
Software Services Provider
Network Operator
As-Is To-Be
Handset Manufact
urer
Brand Owner
OS Collaborat
or
Software Services Provider
Network Operator
Capability matching: OS Collaboration
Collaborate Build Acquire
Costs Low High Med
Time to market Low High Med
Latest features High Low High
Fit with strengths High Med Low
Strengthen ties to attain closer coupling of handset and OS
Partners concentrate on developing and improving the OS. HTC concentrates on improving the UI
Leverage partners’ brand
Diversify OS portfolio
Support only Android Both Windows and Android
PROS
•Save on licensing fee• Provide choice of OS to customers• Promote competition to speed-up innovation in OS
CONS • Lose customers
• Nothing to fall back on• Continue paying licensing fees to Microsoft
Point of differentiation: App Store
Continue with Microsoft and Google App Stores
Develop an exclusive App store
PROS
Popular among developers Avoid risks
Control Selection Customized Appscompetitive advantage Sticky asset
CONS
Lack of control New capability
Forward Integration enables HTC to achieve Cost Leadership and capture Value
Diff
eren
tiatio
n
Cost Leadership
HighLow
Low
Hig
h
Apple
RIM
Samsung Nokia
HTC
Portfolio Rationalization
Smart Phone Industry Overview
New Entrants (Low)
• Capital Intensive• Brand Awareness
Substitutes (Moderate)• Undifferentiated Products• Service providers control
switching costs
Supplier Power (Moderate)• Multiple
software/hardware providers
Buyer Power (High)
• Product Variety• Easily accessible
information/products
Existing Competitors(High)
• Intense Rivalry• Complements differ -
entiate product
Portfolio Rationalization - The engine to finance growth
Problem: HTC ships too many SKU’s
400 SKU’s for HTC Touch
Target segment does not require such variety
US : Apple/Blackberry operate with 3 SKU’s
Asia/Europe: Variety exists for casual users; NOT our target
segment
Reduce costs by achieving Economies of Scale SKU’s consolidation to reduce manufacturing costs Focus on flagship products. Quality not quantity.
Focus on high margin products has paid dividends despite low brand recognition
2007
2008
2009
2010
2011
2012
-50000 0 50000 100000 150000 200000 250000 300000 350000
Operating Margins
Leader in our target market segment
Portfolio Rationalization enables HTC achieve Cost Leadership
Diff
eren
tiatio
n
Cost Leadership
highlow
low
high
Apple
RIM
Samsung Nokia
HTC
Going Ahead
Implementation Blueprint
Short Term Plan• Launch brand awareness campaign• Start portfolio rationalization due diligence• Strengthen collaboration efforts with OS providers and
network operators
Long Term Plans
• Plan to build App Store• Innovate ‘Hero’ product
Strong implementation plan will help mitigate risks
Risks Mitigations
Distribution Channels
Strategic portfolio rationalization
Marketing
Move to open source
Discontinuing products
No clear focus
Risks – Likelihood, Impact & Severity
1
2
3
1
2
3
Impact
Like
lihoo
d
Low High
Low
High
Value Proposition of Proposed Strategy
OS providers
Network operators
Customers
Promotion for their OS
Access to HERO product which is not exclusive
Access to a premium product Complete solutionNot tied to a single network operator
Success Sequence: Moving from an Unknown Brand to Differentiated Cost Leader
Diff
eren
tiatio
n
Cost Leadership
HighLow
Low
Hig
h
HTC: Current Position
Customer-Centric Strategy
Limited Forward Integration Product Portfolio
Integration
HTC: Future Position
What should HTC stand for?
• Apple = Simplicity
• FedEx = Speed
• RIM = Mobile E-Mail
HTC = “myPhone”
Appendix
HTC share performance
1/14/2004
5/28/2005
10/10/2006
2/22/20080
100
200
300
400
500
600
700
800
Share Price
HTC brand recognition
HTC
Nokia
Samsung
Motorola
LG
Blackberry
Apple
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
U.S. Mobile Phone User's First Brand Choice (as a % of total surveyed)
HTC performance
2004 2005 2006 2007 20080
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Revenues Net Income ROIC
Mill
ion
USD Percentage
Smartphone Product Cycle
SWOT Analysis – HTC
STRENGTHS Core competency: Innovation,
Hardware design and Manufacturing
Portfolio of strong products
Strong vendor relationships
OPPORTUNITIES Capturing a greater part of the value
chain
Create strategic partnerships
Shift in industry
WEAKNESSES Low brand awareness
Royalty Payments
Low economies of scale to drive costs down (compared to Nokia)
THREATS Financial Risk. Growing company
Change from price setter to price getter
Shift in industry