International Marketing Case Presentation

Introduction

Founded in 1997 by Cher Wang, Chairwoman, HT Cho, Director of the Board & Chairman of HTC Foundation, and Peter Chou, President and CEO, HTC made its name as the company behind many of the most popular operator-branded devices on the market Starting out with PDAs, HTC became manufacturer in smartphone category the world leading

In June 2006 HTC made the decision to brand phone under its own label, even though a lot of Taiwanese Manufactures and tried and failed. The HTC brand name has a long way to go

Challenges Ahead
The landscape for phone software is changing dramatically with Apple, RIM, Google etc shocking the world with newer and improved products & also services like app stores. Thus HTC faces the following challenges:

Recommendations Shift to Android platform Launch Apps Store with revenue model similar to Apples Technology Focus

Display Technologies Mobile Web and Widgets

Better deals with service providers Improve Utilization for Cost Reduction

HTC History

HTC History

Business Segments
Original Design Manufacturer(OD M) Business

Mobile Operator Business

Complementary Manufactured Business by smartphones for offering branded handset customized companies phones based on products designed Little by HTC service ODM and Mobile Operator Business resulted in profitto margins as responsibility for high as 20% providers such as sales, marketing

Portable Electronics: Mobile Phones Category Analysis

Technological convergence became the key trend influencing the mobile phone subsector, which saw the introduction of many new models offering streaming video, advanced camera features, MP3 capabilities and global positioning systems (GPS). Global volume sales reached nearly 886 million units in 2008. Consumers' desire to listen to music, watch video, play games and communicate anywhere and anytime is transforming the global mobile phone sector. All-in-one portable communication/ entertainment systems complement to the growing consumer demand to be connected and entertained on-the-go. The heightened demand for mobile phones has been stimulated in part by the continuing rollout of advanced telecommunications infrastructure, such as Wi-Fi and 3G mobile phone technology.Mobile phones are now turned into a handheld computer that can be used as a media player, TV, Internet browser, GPS navigator, planner, digital camera
Nokia E75

Demand for Mobile Phones

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The success of mobile phones continued to be determined by the availability and accessibility of online content, which in turn depends of the sophistication of the underlying telecommunications infrastructure.

Mobile Phones - Sales

Source:

Mobile Devices -The iPhone Is Not The Only Game In Town, 2010, Gartner

Competitor Analysis
High

Apple
RIM
Price HTC

PALM

Samsung
Motoro la

Low Narrow Wide

Product-line Breadth

Noki a

1. Shift To Android Platform

Smartphone OS Competitive Landscape

iPhone OS (Apple) Platform Source Code Pros Closed Closed Early momentum Data hungry early adopters Powerful distribution channel Apple dependant BlackBerry OS (RIM) Closed Closed Strong reach (particularly in US) Window Mobile (Microsoft) Open Closed Manufacturer / carrier agnostic Android (Google) Open Open Manufacturer / carrier agnostic Open source innovation Symbian (Nokia) Open Open Massive global reach Open source innovation

Issues

BB dependent Distribution Distribution

Late to market Uncertain consumer demand Android Market launched $3.8M awarded in Developer Challenge 10s of thousands 12 apps

Limited reach in US Distribution

Application ecosystem
Notes: 1.

>3 lakh apps Fewer free >18K apps (~20% free) apps Windows More than 7 BB marketplace billion Application launched Artificially low given the wait for the 3G iPhone (5.3% market share in Q1) download Center being developed for Storm

>10K apps Claims >90M installs over last 2 years Nokia OVI store

Worldwide Smartphone Sales to End Users by Operating System in 3Q10 (Thousands of 3Q10 3Q09 3Q10 Market 3Q09 Market Units) Company Share (%) Share (%)
Symbian Android iOS Research In Motion Microsoft Windows Mobile Linux Other OS Total Units 29,480.1 20,500.0 13,484.4 11,908.3 2,247.9 1,697.1 1,214.8 80,532.6 36.6 25.5 16.7 14.8 2.8 2.1 1.5 100.0 Units 18,314.8 1,424.5 7,040.4 8,522.7 3,259.9 1,918.5 612.5 41,093.3 44.6 3.5 17.1 20.7 7.9 4.7 1.5 100.0

Source: Gartner (November 2010)

The market is growing rapidly at nearly 38%, but Androids sales and share will explode while RIM and Apple will lag Android and the market. Android is expected to match the (current) BlackBerry numbers by 2013.

HTC's Revenue by Product category (Exhibit 9) Year Wireless PDA Microsoft Platform Android Platform ODM 2007 1% 84% 0% 14% 2008 1% 89% 6% 5% 2009 0% 61% 36% 3% 2010 0% 53% 47% 0% 2011 0% 51% 49% 0%

Market Share Growth Rate by Maker Year Wireless PDA Microsoft Platform Android Platform ODM 2007 2008 0% 6% 2009 -100% -31% 500% -64% -40% 2010 0% -13% 31% -100% 2011 0% -4% 4% 0%

Handset Platforms

Transition to Android - Benefits

Smart Phone Sales 2009 = 250m HTCs share 6% = 15m handsets HTC sold 10m Windows based smart phones License fees to Microsoft= $150 million Switch to Android would save this cost Operating Margin increases from 30% to 46%.

2. Launch Apps Store with revenue model similar to Apples

OEM Application Stores Comparison

AppStore - Comparison

Apps Store Increasing Value Chain

Gartner Prediction for Mobile Applications Paid up Mobile Applications to reach 90% from current 82% Mobile advertising down to 10% from current 25% Application stores becoming the focus for several players in the value chain More Consumers will experiment with application downloads Many Free Applications derive Revenue from Advertising The value chain of application Stores will evolve to find the most profitable business model Proposed Revenue Sharing model: 70% of revenue goes to developer, 30% to HTC

Mobile Apps Store

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Mobile Application Stores

Ecosystems Apps much more than stores

3. Better deals with service providers

$199 729 621 0 $99 500 ) $199+ 720

iPhone 4 $729 $199 27%

Black berry $500 $99 20%

Sony X10 $400 $99 25%

HTC suroun d $350 $199 57%

4. Enter the mid-tier segment

Should HTC also enter Manufacture of Mid Range Phones?

Aspirational Brand image to be the BMW of Mobiles Convergence of mid range phones(feature phones) with smart phones Gross margin of Nokia 35%, Samsung 26%, HTC 30%

Smart Phones - Forecasts

Source:
Gartner

Mobile Devices -The iPhone Is Not The Only Game In Town, 2010,

Market Share by Maker (Exhibit 5 b) Year 2007 Apple 2.70% Fujitsu na HTC 3% 49.40 nokia % 45.10% 47.40% 42.30% 40.80% 41.20% 45% 39.30% rim 9.60% 13.30% 17.30% 15.90% 19.50% 19.90% 18.70% 20.80% samsung na na na 3% 4.20% na na 3.20% 35.20 others % 28.10% 25.10% 21.30% 20.50% 18.80% 13.90% 13.10% Market Share Growth Rate by Maker Year Apple HTC Nokia RIM 2008 Q1 2008 2008 2008 2008 2009 2009 2009 Q1 Q2 Q3 Q4 Q1 Q2 Q3 5.30% 2.80% 12.90% 10.70% 10.80% 13.30% 17.10% 4.10% 3.30% na na 3.80% 3% na 4% 4.10% 4.50% 4.30% 5.40% 6% 6.50%

2008 2008 2008 2009 2009 2009 2007 Q2 Q3 Q4 Q1 Q2 Q3 - 360.71 96.30% 47.17% % 17.05% 0.93% 23.15% 28.57% 33.3% -8.7% 2.5% 9.8% -4.4% 25.6% 11.1% -3.5% 1.0% 2.1% 8.3% 5.1% -10.8% 9.2% -12.7% -6.0% 11.2%

38.5% 30.1%

-8.1% 22.6%

5. Improve Utilization for Cost Reduction

Peer Comparison and Analysis COGS/Sales Net Income Margin SG&A/Sales TATR ROA ROE ROCE HTC Apple RIM Palm Inc 67.40% 68.50% 46.20% 66.50% 13.4 18.6 1.55 28.83 31.35 32.55 7.9 13 1.15 14.95 16.7 17.5 15.6 15.5 0.64 9.92 12.1 17.9 7.2 12 1.23 14.76 17.2 18.6 NokiaSamsung 65.20% 77.20% 10.9 11.5 1.51 17.365 19.9 19.6 9 14 1.1 15.4 17.8 18.8

TATR suggest that there efficiency is good compared to peers however internal operating efficiency has fallen over the years. This probably can be attributed to FA investments.

HTC's TATR Over the year Year TATR CA/TA 1.614 2004 6 0.8608 1.823 2005 0 0.9177 1.588 2006 4 0.9368 1.375 2007 7 0.9197 1.325 2008 9 0.8788 0.279 2009 6 0.8653 Avera 0.8964 ge 93

Industry average of global telecom providers (i.e 5 companies considered) is in the range of 67% -80% suggesting that it is well above the industry standards which could be due to the high inventory reducing the operating efficiency. (Note: Data for competitors taken from their balance sheet) TATR

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6. Focus on High-End Technology

Technologies HTC should focus on

Touch Screens will Dominate

7. Brand Enhancement

The Road to Brand

2006 - Peter Chou was appointed as the new CEO Planned to enter the Brandwagon Risks associated were: Competition with the client Scale and budget not available for Marketing History of Failures of Taiwanese players Strong Competitors like Nokia and Samsung 2007 Started its own brand operations by acquiring Dopod Focused high end of "prosumer" market Target "Build a reputation of making the BMW of phones"

HTC Current Strategy

Brand Strategy

Strategies

Focus on Smartphone Markets Build up brand value through innovative products and friendly user interface

Focus on Cusomer Service

HTC Customers complaints about their high-end models like HTC EVO 4G but they are majorly ignored HTC is known for its innovative and expertise hardware designing but with the increase in Number of phones per annum, quality is suffering badly Customers find HTC Phones to be complex and difficult to use. Hence, focus should be done on enhancing user satisfaction

Fast Response to Market Change Deliver Product Diversification to the Market

Quality

Brand Positioning

Focus on Customer Needs

Using innovation to create a phone that fulfills the customer's needs Slogan

You dont need to get a phone. You need a phone that gets you.

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Branding Strategies

Promoting strategies
DESIGN COMPETITIONS: Creating a strong brand community involving them in designing of applications. Such activities will help achieve two main benefits: 1. it will reinforce HTCs strong connection to the brand community by hooking up youngsters early on to the brand to create brand excitement. 2. HTC can reinforces its brand image of always being on the forefront of innovation and design. approach to developing THINK GLOBAL, ACT LOCAL: A holistic several strategies for different regions, but guided by one unified HTC brand image building strategy. Like sponsoring events most popular in that region such that they are in tune with HTCs branding strategy based on YOU PRE-LAUNCH STRATEGY TO BUILD ANTICIPATION AND GENERATE AWARENESS: Devices like smartphones sell mostly through the hype that they create before launch so much so that it is an event in itself. Premium prices can be used at the outset to maximise profits and communicate exclusivity, and then later as the reference price to discount in order to drive sales from less involved market segments. But most importantly, nothing creates better publicity than running out of product long before the initial

Can Taiwan ever be synonymous with HTC? Is HTC on the right path?

Taiwan

Asus:

one of the most vibrant and dynamic economies in Asia. known around the world for its leadership in hightechnology- ranked 2nd on The Economists 2008 IT industry competitiveness index home to globally recognized technology brands including Acer, HTC and AsusTek

Acer:

Multinational computer product manufacturer Business Week's "InfoTech 100" and "Asias Top 10 IT Companies" rankings. It led the IT Hardware category of the 2008 Taiwan Top 10 Global Brands survey with a total brand value of US$1.324 billion multinational computer technology and electronics corporation that manufactures desktop and laptop, PDAs, servers, storage devices, displays, and peripherals. Acer provides e-business services for business, government, education, and home users. Topping the 2010 Top Taiwan Global Brands list for last 2 years Worlds 2nd largest computer vendor, left behind HP

HTCs comparative position

HTC

Relatively new on the market as a brand Only into PDA and smartphone manufacturing as against Acer & Asus who are established players in wider markets as well

Experience of selling high quality unbranded phones for years The only Taiwanese hightech vendor to have a license for using Microsoft products HTCs Magic has been powered by Googles Android

In 2010 Top Taiwan Global Brands, HTC climbed from #4 to #2 closely behind Currently Acer & Asus seem to have an upper hand over HTC in Acer terms of brand value but with Android coming in the picture, HTC has suddenly emerged a closer runner in the list of top Taiwanese global brands. Though it might take some time Taiwan becoming synonymous with HTC doesnt look like a far-fetched idea at all.
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References

HTC

http://www.htc.com/history/

http:// www.phonearena.com/news/Microsoft-tryin

http:// www.fastcompany.com/1615647/htc-contin

http:// www.brandingstrategyinsider.com/2010/07

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