HTC-Corp.

9-712-423REV:SEPTEMBER26,2012________________________________________________________________________________________________________________ProfessorsDavidB.YoffieandJuanAlcácer,andResearchAssociateReneeKimpreparedthiscase.ProfessorYoffieisontheboardofHTC.HBScasesaredevelopedsolelyasthebasisforclassdiscussion.Casesarenotintendedtoserveasendorsements,sourcesofprimarydata,orillustrationsofeffectiveorineffectivemanagement.Copyright©2012PresidentandFellowsofHarvardCollege.Toordercopiesorrequestpermissiontoreproducematerials,call1-800-545-7685,writeHarvardBusinessSchoolPublishing,Boston,MA02163,orgotoÁCERRENEEKIMHTCCorp.in2012HTCCorp.,Asia’ssecondlargesthandsetmanufacturerbasedinTaiwan,wasonaroll.ByQ3,2011,ithadpostedsixconsecutivequartersofrecordsales,drivenbythepopularityofHTCsmartphonesthatranonAndroid,GoogleInc.’soperatingsystem(OS).Undertheslogan,“QuietlyBrilliant,”HTChadenteredtheranksofthetopfivesmartphonemanufacturersintheworldandbecameoneofthetop100globalbrands1.FastCompanymagazinepickedHTCasoneofthe50mostinnovativecompaniesin2010,andthenGSMAnamedHTCasthedevicemanufactureroftheyearinitsglobalmobileawardsin2011.2Thesewereallremarkableachievementsforacompanythatwasstillrelativelyunknowninthemid-2000s.Atthesametime,thecompanyfaceddauntingchallenges.HTCwastangledinpatentinfringementdisputeswithAppleInc.,whichhadhurtHTC’sshareprice(seeExhibit1).Inaddition,HTC’stwomainOSsuppliers,GoogleandMicrosoft,hadalliedthemselveswithcompetitors.MicrosoftandNokiaenteredastrategicpartnershiptoputMicrosoft’sOSonNokiasmartphoneswhileGoogleplannedtobuyMotorola’scellphonebusinessfor$12.5billion.Inthemeantime,Samsung,whichwassmallerthanHTCinsmartphonesin2010,hadsurpassedeveryone,becomingtheworld’slargestsmartphonecompanyinQ3,2011.3Year-over-yeargrowthforsmartphoneswasaround61%in2011,morethansixtimesfasterthantheoverallmobilephonemarket.4YetinQ1,2012HTCannounceda35%year-on-yeardropinrevenuethatfueleda70%declineinoperatingincome.ThecontinuedsuccessoftheiPhoneandintensecompetitionintheAndroidcamp,especiallyfromSamsung,wastakingatoll.Finally,ApplehadtakentheindustrybystormwiththeiPad.Virtuallyeverysmartphonemanufacturerhadseentheneedtoenterthetabletmarket,butsofar,none-includingHTC-hadmadeanysignificantheadway.ForthehighlycompetitiveCEOofHTC,PeterChou,growingslowerthantheindustryandseeinglittleprogressintabletswasunacceptable.Choutoldhistopmanagementteamthatin2012,HTCneededtomovetothenextlevel.AnimportantstepinHTC’sreboundwastheannouncementinFebruary2012oftheHTCOne,anewflagshipsmartphoneline,whichreceivedveryfavorableearlyreviews.Chouwasconfidentthatthenew,greatlyimprovedproductlinewouldgetHTCbackontrack.However,bigquestionsremained:howshouldHTCdifferentiateitselfgoingforward?WhatwouldbethebeststrategicmoveforHTC,followingtheMicrosoftandGoogledeals?HowshouldHTCcompeteintabletsandmitigatetheintellectualpropertywars?Chouknewthattoughdecisionslayahead.FortheexclusiveuseofQ.WuThisdocumentisauthorizedforuseonlybyQiWuinMBAtaughtbyDr.AbdulrahmanChikhounifromMay2014toJune2014.712-423HTCCorp.in20122HistoryHTCwasfoundedinMay1997byHTChoandCherWanginawindowlessofficelocatedinTaoyuanCounty,Taiwan.Cho,asoft-spokenengineerwithasolidreputationforhiskeenattentiontodetailsandquality,hailedfromDigitalEquipmentCorp.(DEC),aformerindustryleaderinminicomputers.Hispartner,CherWang,camefromthelegendaryWangfamilyinTaiwan.ThelateYung-ChiangWang,Cher’sfather,becameoneofthewealthiestbusinessmeninTaiwanbyfoundingFormosaPlasticsGroupandturningitintoamassivebusinessempire.CherWangherselfstartedrunningherowncompany,VIATechnologies,in1984.Infact,Forbesmagazineidentifiedheramongthetop-20world’smostpowerfulwomenin2011.5FromPDAstoWirelessDevicesHTC’sinitialbusinessplantomanufacturenotebookcomputershadarockystart.Oneproblemledtoanother,involvinghighproductioncosts,technicalglitches,andalackofbrandrecognition.Lossesquicklyballooned,promptingWangtoconvinceChotofocusinsteadonhandheld,computer-likedevices.Wangfirstcameupwiththeideainthemid-1990s.ShewaswaitingforatrainataremotestationinFrance.Tiredandwearyfromluggingaroundherheavycomputerequipment,shestartedtofantasizeaboutasmalldevicethatcoulddoeverything,fromcomputer-basedfunctionstomobilecalls.Sheclaimedthat,“Asawoman,it’sveryimportanttocarrythingslight.Everythinghastobeinsidethedevice.”6Coincidently,overaluncheonwithageneralmanageratMicrosoft,WangdiscoveredthatthesoftwaregianthaddevelopedWindowsCE,anewplatformthatcouldrunonsmallerPCdevices.However,itwasgrapplingtogainacceptanceinthemarket.WangimmediatelyofferedtotryandmakeaportablegadgetthatwouldoperateonWindowsCE.PeterChou,atalentedengineerwhohadalsojoinedHTCfromDEC,createdasmallteamtoundertakethejob.Ayearlaterin1998,Chou’steamproudlycreatedtheworld’sfirstMicrosoftpocket-sizePC.Amajorbreakthroughthencamein2000withtheiPAQ,aPDAthatHTCengineeredanddesignedforCompaqComputer.7Businessprofessio