On a drizzly morning in early April this year, a groundbreaking ceremony took place on a plot of land in Xindian City, Taipei County. Such ceremonies are normally a dime a dozen, but this one attracted a bevy of A-list luminaries from the government and information technology sectors, including Republic of China Premier Wu Den-yih, Qualcomm Inc. chief executive officer (CEO) Paul Jacobs, Google Taiwan general manager Chien Lee-feng and Microsoft Corp. vice president John Kalkman, as well as bigwigs from Taiwan’s two biggest telecom operators.
All of these VIPs were brought together to witness the start of construction of the new headquarters of HTC Corp., formerly known as High Tech Computer Corp., the world’s leading maker of smartphones running Windows Mobile and Android operating systems (OS).
Smartphones are the Swiss Army knives of the mobile world, not only easily handling the conventional cellphone applications of voice calls and text messaging, but also offering fast video viewing, seamless Internet browsing, multimedia gaming, email, global positioning system (GPS) navigation and the ability to manage calendars and contacts. Smartphones are also the fastest growing segment of the overall mobile handset market. According to the International Data Corp., an international market research and analysis firm based in the United States, worldwide smartphone shipments jumped to 54.7 million units in the first quarter of this year, up from 36 million in the first quarter of 2009, an increase of 51.9 percent.
iSuppli Corp., a US-based market research firm, predicts that the worldwide growth of the segment is likely to continue, expanding 35.5 percent this year compared with 2009. “Smartphone growth will be driven by a number of promising developments, including the introduction of entry-level models, enthusiasm from vendors across the mobile phone and computer industries, the prevalence of 3G network deployments and the promotion of data-centric services in mature markets,” iSuppli says. With a slew of new models scheduled to hit the market this year, Steven Tseng, a securities analyst for RBS Asia Limited, Taipei, predicts that HTC alone will ship a total of 16.8 million handsets this year, an increase of 44 percent from 2009.
Heavyweight Lineup
More than any other company, HTC is responsible for putting Taiwan’s smartphone industry on the international map, joining a lineup of heavyweight players including Nokia Corp. of Finland, Research in Motion Ltd. (RIM) of Canada and Apple Inc. of the United States. In fact, HTC has become a name that partners in the handset ecosystem—from telecom operators and handset chipmakers to component manufacturers and OS suppliers—cannot afford to overlook, as according to US-based industry tracker Gartner Inc., HTC’s global market share in the smartphone sector rose to 6.9 percent in 2009 from 6 percent in 2008, making its devices the world’s fourth most popular behind those from Nokia, RIM and Apple, in that order.
HTC began operations in 1997 by manufacturing personal digital assistants (PDA) on a contract basis for companies like Compaq Computer Corp., Dell Inc. and Hewlett Packard Co. In this respect, HTC shares a common history with Taiwanese computer giants Asustek Computer Inc. and Acer Inc., which started as original equipment manufacturers (OEM) or original design manufacturers (ODM) before going on to develop their own brand names. Because international customers tend to disapprove of their contract suppliers competing in the same market space with own-branded products, Acer and Asustek eventually spun off their contract manufacturing operations so that they would be free to concentrate on branding.
Developing and testing touchscreens for smartphones began at HTC as early as 1999, with the first touchscreen models shipped to clients in 2002. These were the company’s OEM years, during which HTC was responsible for making the hardware offered by some of the world’s biggest brands, including Compaq’s iPAQ, Palm Inc.’s Treo 650, Telefónica O2 UK Limited’s XDA and France Telecom Orange’s SPV.
The HTC Droid Incredible, which runs on the Google-backed Android operating system. Released in late April this year in the United States, initial stocks of the smartphone sold out after one day. (Photo Courtesy of HTC Corp.)
In 2007, HTC changed directions in a significant way when it decided to emerge from behind the scenes and launch “HTC” as its own smartphone brand. The manufacturing aspect of the shift was not terribly hard for the company, as it was able to draw from the design and innovation experience it had gained as a contract phone maker and apply it to its own offerings. A more difficult change was overhauling its business strategy, as the handset maker had to turn its focus from satisfying the demands of companies like Compaq or Dell to serving the needs of consumers.
On June 5, 2007, the company made a splash in the smartphone industry by launching sales of the HTC Touch—the first finger-friendly touchscreen smartphone—in the United Kingdom. Apple’s iPhone, which many people view as the original touchscreen smartphone, actually began selling in the US market on June 29, 2007, some three weeks after the Touch.
In the years since the Touch went on sale, HTC has released a string of models based on Microsoft’s Windows Mobile OS, including the highly touted Touch Diamond in 2008 and HD2 in late 2009. Although HTC achieved success with smartphones running on Windows Mobile, it also saw Nokia, RIM and Apple thrive as they developed their own software platforms. In this regard, a fundamental shift occurred in the smartphone world on November 5, 2007 when the Open Handset Alliance, of which Google is a major member, released its Android OS. Unlike Windows Mobile, Android is open source, meaning that there are no licensing costs for developers.
Although it is not the developer of Android, HTC grasped the platform’s game-changing potential before any other maker, launching sales of the first Android-based smartphone in the United States in October 2008. Since then, HTC has maintained its position as the biggest maker of smartphones running on Android, which has become a new business driver for the company as it steers away from its past practice of putting all its bets on Windows Mobile.
Although Android has only been available for less than three years, HTC has released numerous well-received phones running the OS, including the Hero, Legend and Desire models, and more recently, the Droid Incredible and Evo 4G. And then there is the Nexus One, a phone manufactured by HTC that bears its brand together with that of Google, putting the Taiwanese maker’s close relationship with the American search giant on full display. Google Taiwan general manager Chien Lee-feng is all praise when talking about cooperating with HTC, saying that the smartphone manufacturer is “the best partner for us.”
However, HTC’s fast expansion has struck a nerve among some of the company’s rivals. In March this year, Apple filed a lawsuit in the US District Court in the state of Delaware as well as a complaint with the US International Trade Commission, accusing HTC of infringing on 20 patents related to the “user interface, underlying architecture and hardware” of the iPhone. “We can sit by and watch competitors steal our patented inventions, or we can do something about it,” Apple CEO Steve Jobs said in a statement when the legal actions were filed. “We’ve decided to do something about it. We think competition is healthy, but competitors should create their own original technology, not steal ours.”
Among the HTC-made devices mentioned in the suits are the Nexus One and T-Mobile’s G1, as well as HTC’s own-branded Touch Diamond, Touch Pro, Tilt, Pure and myTouch. Apple is asking for unspecified damages and an injunction to prevent HTC from making or selling products using the patents in dispute.
The Android-powered Garmin-Asus Garminfone is the result of a partnership between Taiwan’s Asustek Computer Inc., one of the world’s biggest makers of notebook computers, and US-based GPS maker Garmin Ltd. (Photo Courtesy of Asustek Computer Inc.)
HTC, however, has become a sufficiently large international player to take such legal actions in stride. “HTC is not a newcomer in the smartphone scene and the industry so far has only good comments about our innovation,” HTC CEO Peter Chou says. “There’s always a price to pay if we want to grow stronger. Litigation issues are not uncommon in the industry. We’re a company with our own niche and we’re not a copycat.”
In May this year, HTC fired back by filing a counter complaint against Apple, asking for an injunction on the sales of that company’s popular iPhone, iPad and iPod in the United States. In a complaint lodged with the US International Trade Commission, HTC has requested that the import and sales of the Apple gadgets be halted in the United States due to infringements on five HTC patents.
Major smartphone players such as Apple have reason to worry about losing more ground to HTC in the future. As HTC chairwoman and co-founder Cher Wang told the VIPs at the groundbreaking ceremony for the company’s new Taipei County facility, “We started from ground zero when we moved into the brand business in 2007. But we haven’t looked back since. From now on, HTC will be the trendsetter for the global smartphone industry, which is set to boom in the future.”
The company is not content to rest on its laurels, however. “We actually still have a lot of things to learn,” Chou says. “We are a humble company and we always talk to our industry partners to learn how they see the direction of market trends. This gives us inspiration.”
Humbleness, however, is not the only quality behind HTC’s emergence as a major smartphone player, as persistence, boldness and willingness to take on challenges are also some of the company’s hallmarks. “We know it isn’t easy to boost market acceptance on a model that runs on a new OS,” Chou says about phones running Android, as well as Qualcomm’s Brew Mobile Platform, another open operating system expected to show up in handsets later this year. “But we need to constantly come up with offerings to target different market segments.”
That was why HTC forged ahead of its peers by unveiling the first smartphone with a price tag below NT$10,000 (US$313) in April this year, bringing the devices a step closer to the mass market and breaking the stereotype that smartphones are only for those who have deep pockets. Retailing at NT$7,900 (US$247), the HTC Smart is targeted at emerging markets such as India and mainland China—two countries with rapidly growing numbers of cellphone users where global handset makers are now wrestling for market share.
The idea of an affordable smartphone was conceived three years ago, recalls Chunghwa Telecom chairman Lu Shyue-ching, adding that he discussed the concept with Peter Chou at the launch of an HTC phone bundled with a Chunghwa subscription plan. Chou agreed with Lu’s vision and HTC worked for more than two years to develop an inexpensive, but capable and attractive product. Chou called for a redesign of the prototype at one point because he did not feel that the product connected with users, one of the factors behind the Smart’s delayed release.
Acer Inc.’s Liquid smartphone. Acer CEO Gianfranco Lanci says the company aims to ship 2 million to 3 million smartphones this year. (Photo Courtesy of Acer Inc.)
Technology Leader
While HTC has remained the technology leader in Windows Mobile and Android phones, its weaknesses in brand awareness and economy of scale could constrain growth, according to Laura Chen, an analyst at Bank of America Merill Lynch. HTC, however, is taking steps to improve its brand awareness with its worldwide “Quietly Brilliant” advertising campaign, while it is addressing economy of scale issues through launching its new Taipei County headquarters, which is expected to open by the end of 2011. The facility will have 17 floors and accommodate up to 2,200 employees, the bulk of whom will be research and development staff.
While Nokia, RIM and Apple are formidable foreign rivals, HTC also faces growing competition at home. Asustek Computer Inc.—the inventor of the netbook computer, which has quickly won over consumers with an affordable price tag and easy portability—is increasing its visibility in the smartphone market by emphasizing navigation capabilities.
Asustek joined hands with US-based GPS device maker Garmin Ltd. in February 2009 to make and market smartphones under the joint Garmin-Asus brand. Garmin-Asus seeks to partner with the world’s leading telecom providers to offer users the most advanced, convenient and fun navigation experience, says Benson Lin, Asustek corporate vice president of personal mobile devices.
Product development initially lagged after the partnership was formed, however, as Garmin struggled with the effects of the recent recession. “We experienced a restructuring period with Garmin after forming the partnership—that’s why we’d been slow in launching new products,” Lin says.
Garmin-Asus introduced just its third model in February this year, but the company says it plans to accelerate its release cycle by launching at least one new smartphone every quarter this year. Models in the pipeline include the partnership’s first Android smartphone, as well as another that operates on mainland China’s 3G standard. According to Asustek CEO Jerry Shen, Garmin-Asus will take a place among just a handful of makers selling smartphones in the mainland during the second half of this year.
While shipments for 2009 were “small,” Shen says, the company aims to ship at least 500,000 smartphones this year, a number that does not include devices designed for mainland consumers, which could give sales a “significant” boost, according to the CEO. As a newcomer on the scene, Garmin-Asus will adopt a slow but steady approach to marketing products, Shen adds.
Customers shop for cellphone service plans in Taipei. According to market researcher iSuppli Corp., smartphone use is likely to expand by 35.5 percent this year compared with the 2009 level. (Photo by Huang Chung-hsin)
“We have plans to release more devices in the US, Europe, Asia-Pacific and China this year,” Benson Lin says, “so users seeking the convenience that ‘navigation smartphones’ offer can look forward to our products.”
In April, Asustek announced that US telecom service provider T-Mobile would start selling the Garmin-Asus A50 later in the spring. The A50 is an Android-powered smartphone that will deliver a fully integrated Garmin navigation experience, according to Asustek. “Our partnership with T-Mobile reflects the growing recognition within the global telecommunications industry that there is a strong consumer demand for navigation-based smartphones and services,” Lin says.
HTC also faces increasing competition from Acer, which made its first official foray into the smartphone arena early last year after merging with local handheld device maker E-Ten Information Systems Co. in March 2008. This year, Acer has announced plans to unveil a “brand new user interface that won’t be similar to those available in the market,” according to Acer. “We’ve been working on the user interface for nine months now,” says Gianfranco Lanci, Acer’s president and CEO.
With the fresh interface, Lanci adds, the new phones will connect easily to other Acer products such as notebooks or desktop computers for a total user experience. The CEO refuses to reveal Acer’s smartphone shipments for 2009, but says the company aims to ship 2 million to 3 million by the end of this year. “Consumers should expect more excitement from us [in the remainder of the year],” Lanci says.
To get the excitement started, the company announced the launch of the Acer Stream at a global media conference held in Beijing in late May. The Stream is designed to cater to demanding users who look for the best in entertainment and minimalist design, the company says. The Stream is sleek, measuring just 11.2 millimeters thick, but has a wealth of high-end multimedia features, Acer says. Highlights include fast web browsing, multi-channel audio playback made possible by Dolby Mobile, the capacity to display high-definition movies, as well as the ability to play such movies on other devices by connecting them to the smartphone’s built-in high-definition multimedia interface port, the company says.
In the past, when Taiwan’s information technology industry has set its sights on a new market sector, the results have been impressive. Acer has become one of the two biggest players in the worldwide personal computer industry, for example, while Asustek has found a spot among the top five notebook makers. With HTC leading the charge, it is easy to see Taiwan becoming one of the world’s most successful producers of branded smartphones as well.
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Jason Tan is a freelance writer based in Taipei.
Copyright © 2010 by Jason Tan