Can smartphone visionary engineer HTC’s comeback?

By Jeremy Wagstaff & Clare JimNow in his 10th year as CEO of HTC Corp, Peter Chou is lauded as the architect of the Taiwanese firm’s award-winning smartphones. But as the company’s fortunes have dived, some insiders say he’s now an obstacle to any revival. Rocked by internal feuding and executive exits, and positioned at the high-end of a smartphone market that is close to saturation, HTC has seen its market share slump to below 5% from around a quarter five years ago; its stock price is at 8-year lows, and it has warned it could make a first operating loss this quarter. Reuters interviewed a dozen former and current HTC executives who said Chou’s abrasive management style and weak strategic vision play their part in the company’s decline, which has coincided with the success of Apple Inc’s iPhone and Samsung Electronics’ Galaxy phones. Chou has said publicly he has no intention to stand down, and executives — none of whom wanted to be named because of the sensitive nature of the issue — said HTC has no clear internal successor. “Part of the weakness is there is no obvious successor, and that’s not been good for morale,” one said. Chou declined to be interviewed for this article, but in response to Reuters queries, the company said: “HTC’s board and broad employee base remain committed to Peter Chou’s leadership.  The (flagship) HTC One product family — which has been met with accolades by media and consumers alike — was a result of Peter’s vision and leadership, and speaks for itself.”  Born in Myanmar but educated as an electrical engineer in Taiwan, Chou joined HTC from Digital Equipment Corp (DEC) in 1997. Colleagues describe him as a perfectionist with an obsessive eye for materials and hardware design. Staff would deliver trays of prototype phones for him to inspect and pore over, spinning them to check for balance and running his fingers across the bevelled edges and joints. Phones would pile up on his desk, sometimes spilling onto the floor.  That attention to detail and Chou’s willingness to make decisions on the fly helped build a culture within HTC of moving quickly to address market demands. At an offsite meeting two years ago, for example, the HTC team realised it needed another device for its portfolio. Chou quickly drew some sketches on a whiteboard, recalled one of those present, and soon had the outlines of a device, its price point, and a launch date — just three months away. Most manufacturers would need up to 18 months for a similar project, yet the Sensation XL appeared on schedule, and to rave reviews. “Having the ability to just tear up a plan and say, OK, this is the new thing and we’re going to get it done fast. That’s Peter,” said another former senior foreign executive. This shoot-from-the-hip approach served HTC well when the market was growing fast. Shortening the time to market meant HTC could alter plans at the last minute to take advantage of new or cheaper parts. But, as the market has matured, making it harder for handset makers to differentiate their products, the approach has left HTC vulnerable. Locking in the supply of more advanced components and materials to make products stand out requires more foresight and planning than HTC currently allows, former executives say. “The weak point is they don’t really have a long-term strategy,” said one. “It used to be a strength, and now is becoming a weak point as they don’t have a clear direction going forward.” HTC’s second-quarter net profit was well below forecasts even after resolving component shortages that hit its HTC One phone, and the company has said current quarter revenue could fall by as much as 30% from the previous quarter. HTC shares trade at around a tenth of their 2011 peak. Just three years ago, HTC was shipping 25 million smartphones a year and Chou led a huge expansion, bringing in foreign executives from Sony Ericsson, Apple, Motorola and Microsoft as he sought to take on Apple by doubling HTC’s shipments.  HTC was named Device Manufacturer of the Year at the world Mobile Congress in February 2011 and its market value topped that of rivals Research In Motion, now BlackBerry Ltd, and Nokia. Chou ordered champagne to celebrate. But as Apple and Samsung reigned supreme, HTC’s annual shipments never reached that 50mn level, and by the end of last year HTC had dropped to 10th among global smartphone makers. The HTC One, and earlier so-called ‘hero’ handsets from HTC, have won wide praise. The problem has been selling them. Executives say HTC’s failure to hit sales targets was at least partly down to Chou’s management style. After hiring a slew of foreign executives, he fell short on promises to senior staff to foster a more open culture and cede sufficient authority. He openly berated managers and overrode their decisions, often with little discussion.  Such an atmosphere, executives said, damaged morale and left managers uncertain of their roles. Chou kept his sales, product, marketing and design executives separate and, in some cases, created parallel teams doing the same thing. He didn’t hold meetings of executives of the different departments to iron out problems even as HTC’s performance wilted. “There’s a culture in HTC not to discuss numbers at senior management meetings,” said one former executive. “Those discussions tend to become hard or ugly, but if you don’t solve it, it becomes bigger.” Chou’s difficulty in developing a durable global brand of handsets and building an ecosystem of apps and services around it raise questions about how HTC can recover under his leadership at a time when high-end smartphone sales growth is slowing.  “With intensifying competition from other top-tier players and the entrance of lower-tier players, we think a long-term margin downtrend is inevitable,” SinoPac wrote in a recent note. Many of the foreign hires have now quit, and HTC’s old guard has re-established charge, running nearly all operations except design from Taipei. That, say those both inside and outside the company, is a mixed blessing. While leadership tensions may have eased, some warn that concentrating global marketing in Taiwan will create a one-size-fits-all, local approach that won’t help HTC grow globally. “What works in Taiwan is different from other markets,” said one of the former executives. Chief Marketing Officer Benjamin Ho defended the move, saying in a recent interview with Reuters that it made sense to centralise key functions, but that HTC was “not forgetting that we know we’re an international brand.” Even his fiercest critics agree Chou remains the heart of the company and say it’s hard to imagine HTC coming up with great devices without him. As it seeks to turn around its fortunes, HTC has launched cheaper phones in China, and brought out a smaller, cheaper version of its flagship phone, the One Mini. It is trying to revive its US business by working more closely with operators and forming a new operations team. — Reuters

Smart watches might not fit millennials’ needs, says expertYoung adults tend to be early adopters of new technology. But as Samsung Electronics Co reportedly prepares to unveil its Gear smart watch next month, it could run into a barrier among young users who have grown up with time-telling cell phones in their pockets instead of watches around their wrists.“A lot of the millennial behaviour is transitory,” said Jeffrey Cole, director of the Centre for the Digital Future. “But as people age, they still are not wearing watches, and we’ll begin to find out next month if that behavioural change is transformational.”The centre, affiliated with the USC Annenberg School for Communication and Journalism, has been tracking the same group of people for 13 years. And its annual study has given the think tank long-range insights into changing consumer behaviour.This year, Cole said, questions about wearables — computing devices that are worn rather than held — are starting to emerge.“We’re preparing for the invasion onto our body,” he said.The results, which fall in line with other market research surveys, show little interest in devices such as Google Glass, Nike’s FuelBand health monitor, the Fitbit activity tracker and smart watches among millennials. About 3% of respondents are using smart watches, Cole said.“People right now don’t think they want wearables,” he said. “People also don’t realise what they want, and we believe having the Internet right at our level 24/7 is going to be a compelling proposition.”The emerging problem is that everyone’s starting to dig in their heels against privacy intrusions and the blurring lines between work and play. Having a talking, tracking and texting watch isn’t about to make things easier for consumers.“Technology is a fundamental part of people’s lives, but we’re working for balance,” Cole said. “Nobody wants to ban the stuff, but we need to create boundaries.”About 45% of people surveyed by the centre said they can spend more time with family and friends because technology allows for working remotely. Still, 20% resented working from home and 31% said technology had made finding that balance harder.Gadget manufacturers could help by improving features such as user profiles and account switching to help people segregate work and personal tasks. A smart watch, for example, could automatically stop corporate e-mail notifications during lunch or while the device’s sensors determine that the person is exercising.Cole recalled a button on his old Palm Treo that needed one flick to turn off the ringer — something that takes several taps on some newer devices. That could explain why a slowly growing number of survey respondents, now 25%, said they struggled to figure out new technology.“You don’t get instruction manuals anymore,” Cole said. “To really understand your smartphone, you would need 300 pages and days of training.” — Paresh Dave, Los Angeles Times/MCT