HTC is still unprofitable for 15 consecutive quarters due to market-insensitive pricing
HTC has been unprofitable for 15 consecutive quarters. Still, some bright spots include when HTC surged after a loss record in Q4 2017.
HTC revenues maintained a downward trend in January (-15.3 percent) and February (-23.2 percent) of this year. Not surprisingly, its Q1 2018 revenue will be another record low. (HTC sold most of its smartphone business to Google in January this year and its revenue will be incorporated in its Q1 earnings.)
VR headset Vive PRO will be released in April, and the U12 smartphone series is expected to be unveiled in May.
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HTC is holding onto capital
After HTC announced a deal with Google, Chialin Chang, president of HTC’s smartphone and internet equipment business at the time, resigned due to “personal career plans”. The mobile phone department was later integrated with the VR business.
The VR market is currently very small. The weakening of the mobile phone business will have a direct impact on revenue, and it is reasonable to expect continued decline.
Inexplicably, HTC has been selling its fixed assets. For example, in 2017, it sold its Shanghai factory for 630 million yuan ($100 million) and did not invest the capital. Even if HTC uses current assets to make up for the loss, HTC was still holding 38.4 billion NT dollars (about 8.27 billion yuan or $1.3 billion) in Q4 2017.
HTC is not investing its capital.
On June 15, 2017, HTC CEO Cher Wang was questioned by a 80-year-old shareholder at a shareholders meeting, “What strategy do you have to get the company back on track?”
Wang responded, “I am sorry that the company is not profitable. I have been a CEO for two years, and I firmly believe that in the third year, HTC will be able to bring the shareholders satisfactory results.” In 2015, Wang assumed the position of HTC CEO, and this year is the deadline to keep her word.
Whether it’s mobile phones or its VR business, HTC’s core idea is to pursue profits. However, looking back, high-priced mobile phones, high-priced VR hardware, and desperate efforts to find business-end customers have failed to save HTC.
What is to blame?
HTC’s biggest problem is that it has always overestimated itself. Its product prices were inconsistent with the actual market. HTC has overindulged in its past glory, as is the case with its mobile business and its VR business.
HTC advocates itself as a leader in the VR industry. HTC Vive was once in high demand from many VR experience stores for its good performance. With the Vive X Accelerator program and the VRVCA fund, HTC has helped excellent VR/AR entrepreneurial teams to gain capital and contributed to the development of the industry.
However, in its pursuit of profits, the “prideful” HTC always fell behind competitors in lowering prices, which made it gradually lose its leading position in the industry.
A Steam hardware and software survey released by Valve in February 2018 showed that in February, the market share of Oculus Rift reached 47.31 percent, and that of HTC Vive was 45.38 percent. Previously, HTC Vive was ahead of Oculus Rift. Meanwhile, Microsoft’s MR had increased its market share to 5.35 percent.
Price is currently the most important factor that influences a VR user’s choice. Oculus acquired a large number of new users after rounds of price reductions. In August 2017, a large number of users brought about by price reductions drove nearly 100,000 Oculus users into Steam VR, and the number of active Oculus users reached a record high.
The business-end market development that HTC was once proud of is now threatened by Chinese VR hardware manufacturers. Shopkeepers prefer the more cost-effective equipment such as the Dapeng VR, Pico and 3Glasses.
Naturally, HTC should have made timely adjustments, but it didn’t.
The Vive Focus was released during the “Double 12” shopping festival in 2017 for the price of 3,999 yuan ($635). The Vive PRO, which will be unveiled on April 5, will be priced at 6,488 yuan ($1031). The bundled package including the positioning and controller system will be priced at more than 11,000 yuan ($1,748), triggering heated criticism from the industry.
Self-help or as usual?
In 2017, hardware manufacturers including Oculus and HTC competed to launch their own all-in-one VR machines. This is mainly due to current bottlenecks in the development of PC VR devices. Performance iterations and product configuration changes are time intensive, and the resolution increase alone is not enough to satisfy consumers. The production process also cannot meet the demand for substantial price reductions.
The VR all-in-one is a cheaper and more portable option at the cost of sacrificing some functions. The VR all-in-one is cheaper than a PC VR, and is superior in experience compared with the Gear VR. The VR all-in-one opens the consumer market.
Oculus has partnered with Xiaomi to open up the thousand-yuan market (in the ballpark of $160). Vive Focus is priced at 3,999 yuan ($635), a prohibitive price for many consumers.
On the other hand, Vive Pro is not a next-generation product. Although it has higher resolution, there is no major breakthrough to justify the high prices that are clearly not acceptable to consumers.
VR hardware equipment and content experience are not yet up to standard, and it is not a necessity like a mobile phone. If manufacturers insist on high prices, they will encounter trouble. This is also a common problem encountered by VR/AR. AR glasses priced tens of thousands yuan are more used in the industry and other fields.
In summary, HTC has not been able to get rid of old habits.
Wang said at the Mobile World Congress in February that Vive Reality will be combined with VR, AR, 5G and AI. The combination of cloud computing and 5G transmission can transform each AR and VR device into powerful computing devices known as MR, or mixed reality. By then, smartphones may no longer be what they are now. They may be shaped like glasses, allowing information to be delivered in front of the eye by 5G. HTC’s official Instagram account also shared this prospect.
The combination of mobile phone and VR business also confirms that mobile phones and MR will eventually become merged in the future.
In the Q4 2017 earnings report, HTC’s operating costs were reduced from NT$5.9 billion ($202 million) a year ago to NT$4.7 billion ($161 million), and R&D spending was unchanged from the same period in 2016. This means that a part of the R&D used in the mobile phone business had been added to the VR business. All those in VR may not be wrong, but HTC still may not be able to save itself.