According to Digitimes, HTC won’t use the top-of-the-line Qualcomm processor in their new phablet:
HTC reportedly will adopt an old Qualcomm processor, the quad-core 1.7GHz Snapdragon S4 Pro APQ 8064, for production of its first large-size HTC One Max to be launched in October 2013, according to sources in the supply chain.
Some sources said that HTC is being forced to use the old CPU model because it is unable to secure sufficient supply of Qualcomm’s high-end Snapdragon 800 processors, given that a handful of other brands, including Sony Mobile Communications, LG Electronics, Asustek Computer, Acer and Xiaomi Technology have all decided to use Qualcomm’s Snapdragon 800 family CPUs for most of their smartphone models to be launched in the second half of 2013.
Horace Dediu has written at Asymco about the phenomenon of smartphone manufacturers never recovering once they stop being profitable (as HTC will no longer be after this quarter). There are many reasons this is the case – operator confidence likely looms the largest – but the complete loss of buying power in the components market is another.
So it seems to be with HTC and the Snapdragon 800. Qualcomm will, understandably, prioritize companies with a more certain future and larger order size when it comes to delivery of their new SoC.
I’ve written about HTC’s death spiral previously, including their component challenges, but it’s worth stepping back and examining how HTC reached this point.
Originally a dominant Windows Mobile player, HTC was the first smartphone manufacturer to embrace Android, leaving them perfectly placed when desperate carriers who didn’t have the iPhone came calling. HTC, however, mistook their opportunity-based success as being directly attributable to their product prowess. And so, when Samsung entered the market, HTC quickly retreated to the top end of the market, making the “best” Android Phones, including the One X/S/V series last year, the Butterfly, and the One this year. All three models featured high-end industrial design, and prioritized fit-and-finish over things like removable batteries or expandable storage.
The problem for HTC is that customers who value high-end industrial design also value fit-and-finish in software, and thus buy iPhones. High-end customers who reject the iPhone for Android usually do so because they seek more customization and flexibility; naturally, they also prefer hardware features such as the aforementioned removable battery and expandable storage, which the Galaxy S series is happy to provide.
To put it another way, HTC has been targeting the high-end market with an inferior product. And now, to add insult to injury, they can’t even deliver top-of-the-line components for their phablet, the most un-iPhone-like premium device of all.
In this way, HTC is very much the hardware version of Windows Phone. Windows Phone from day one targeted the iPhone, setting strict hardware baselines and severely limiting both OEM and carrier flexibility, ensuring minimal fragmentation. Unfortunately, customers who cared already had iPhones, and now Windows is stuck without the minimum components – apps – needed to compete.
More broadly, Microsoft as a company has forgotten that their success in the ’80s – which flowed directly through to the ’90s and ’00s – was opportunity-based, not product-based. Microsoft rode IBM’s coattails – and missteps – to a dominant position in PCs, and the network effect took care of the rest.1 Attributing this success to a superior product results in the sort of overconfidence that matches the Zune up with the iPod, the Surface with the iPad, and Windows Phone with the iPhone.
Both HTC and Windows Phone are now racing downmarket, but one does not undo one’s core competence and capabilities so easily. HTC simply doesn’t have the volume or cost structure to offer competitive prices, and Windows Phone’s hardware requirements are still too high to compete with feature phones and low-end Android.
The comparison is even more interesting when you recall the shared beginning I referenced above; at one point, HTC manufactured over three-quarters of Windows Mobile devices. A shared ending seems to be in the cards as well.2
It was the same way with Office, which capitalized on WordPerfect’s delay in adopting Windows 95 (Of course, it’s still a bit of an open question about who is to blame for said delay) ↩
So what should HTC have done?
I think they should have retreated to their ODM roots and become the “house manufacturer” for carrier-branded phones. There is room for a “3rd”, but that 3rd does not mean a 3rd ecosystem; rather, it means a 3rd manufacturer. Carriers would have gladly embraced a partner willing to provide a counterweight to Apple and especially Samsung. ↩