HTC’s Worsening Smartphone Woes Could Push Them Into the Arms of Amazon
HTC is back in the news again this week, much to their dismay. The WSJ, Reuters, and others are reporting that HTC’s financial state is worsening which in my opinion could make a deal with Amazon to produce a Kindle smartphone that much more likely.
This company, which has a solid reputation for making great smartphones that no one wants to buy, is reportedly shutting down production lines in their factories in Taiwan. Reuters is reporting that:
Taiwanese smartphone maker HTC Corp has halted at least one of its four main manufacturing lines, accounting for at least a fifth of total capacity, and is outsourcing production as a sales slump puts pressure on its cash flow, according to sources with direct knowledge of the situation.
Reuters went on to add that HTC reported their first ever quarterly loss last quarter, and that HTC’s "cash flow from operations dropped to a negative $707.27 million as of the end of June."
The company has slipped from the top ten smartphone makers (according to Gartner), and according to Bloomberg HTC’s share of the global smartphone market fell to 2.8% in the second quarter, down from 5.8% a year earlier. The total market is estimated to have grown by 47% during that quarter, so HTC’s losses aren’t quite as bad as they first appear, but they’re still selling fewer smartphones than they did the year before.
Stories about HTC’s woes have been circulating since at least June, but now that HTC is rumored to be negotiating with Amazon the woes take on a whole new light.
As you probably recall, a couple weeks ago Bloomberg reported that Amazon and HTC have been negotiating since June over the possibility that HTC might make several smartphones for Amazon. And while one should never take a rumor too seriously, HTC’s current financial issues lend a lot of credence to the idea.
At this point HTC has more to gain by signing a deal with Amazon than they risk losing as a result of Google’s wrath.
As you may have read in Ars Technica earlier this week, Google maintains a tight grip on Android device makers:
While it might not be an official requirement, being granted a Google apps license will go a whole lot easier if you join the Open Handset Alliance. The OHA is a group of companies committed to Android—Google’s Android—and members are contractually prohibited from building non-Google approved devices. That’s right, joining the OHA requires a company to sign its life away and promise to not build a device that runs a competing Android fork.
Acer was bit by this requirement when it tried to build devices that ran Alibaba’s Aliyun OS in China. Aliyun is an Android fork, and when Google got wind of it, Acer was told to shut the project down or lose its access to Google apps. Google even made a public blog post about it.
HTC could be in such a bad state that they might actually sell more smartphones to Amazon than they sell right now.
Of course, this would depend on Amazon’s ability to market said phone, but if they price it on the same model as the Kindle Fire tablets then Amazon should be able to clean up.
What do you think?
Thanks Felix, for the idea!
flyingtoastr October 23, 2013 um 10:43 am
Amazon won’t make any headway with their phone "pricing it like the Kindle Fire". Carrier subsidies in the US mean that the highest end phones are advertised and sold at $200 – roughly a third of actual BOM costs. So unless Amazon is willing to lose hundreds and hundreds of dollars on every unit sold, or trim specs to the point where it’s only a minor loss (but runs like crap), there’s no hope for them in the US.
Now, a cheap phone overseas might do better where there aren’t carrier subsidies dragging the average price down, but Nokia has actually been cleaning up fairly well with their low-cost phones in Eastern Europe and Asia (and, unlike Android, WP8 actually runs pretty well on cheap hardware like the 521, so they can easily trim specs to save margin without hitting the UX too hard).
And of course you have to take into account the biggest gorillas in the room, Samsung and Apple. Unlike their tablets, Apple competes on price in the phone market (iPhones are the same price subsidized and unsubsidized as the top-end Android phones). And Samsung is the rare company that actually spends more than Amazon in advertising. Last year Samsung spent nearly $12 BILLION in marketing for the GSIII. Amazon wouldn’t have their fun time kicking around BN with their larger marketing budget, because they simply can’t compete with the mind and market share of those two incredibly rich and incredibly entrenched companies.
If Amazon launches a phone it will flop. It’s not a market they can win by their normal means.
Did AT&T Force Amazon to Give up on a Budget-Priced Kindle Phone? – The Digital Reader September 11, 2014 um 11:05 am
[…] was talking about developing a budget smartphone with HTC (and possibly even buying the company, like rumors suggested) but that fell through when AT&T stepped in. The telecom reportedly pressured Amazon with the […]