HTC CEO Cher Wang: "We had to rethink phones as a company. VR is more important."
The struggling smartphone maker's CEO tells Madhumita Murgia what went wrong
Perched above the hustle and bustle of the Las Vegas strip in a 21st floor hotel suite, 57-year-old Cher Wang, chief executive of smartphone company HTC, receives visitors with a smile. Despite a barrage of acerbic editorials in the last year, questioning whether her business will survive 2016, the Taiwanese boss is upbeat and excited. The reason? HTC’s new virtual reality headset, the Vive.
“Virtual reality is something people have talked about for 20, 30 years, in movies, in books and finally it is real,” she says. “VR has been on our minds for a long time, and now HTC has made virtual reality real.”
There are at least three other major companies, including Sony and Facebook, with new VR headsets out this year, but Wang’s optimism is infectious. “With virtual reality, technology becomes limitless. You can inhabit a different world with a head mount. Think how it could change surgery, education, science, even shopping.”
Amidst all the talk about the headset’s new front-facing camera that allows you to switch between the real and virtual worlds, and low latency that keeps nausea at bay, there is a rather large elephant in the room.
We haven’t yet talked about smartphones.
Founded in 1997, HTC is a pioneer of the mobile phone revolution – it was one of the first companies in the world to make handheld computers, touchscreen smartphones like the Palm Treo 650, and Android flagship phones like the G1 and later the Google Nexus One. “We have always been very innovative, we have this history of innovation in our DNA,” Wang says.
But the company is currently in freefall, as its smartphone business implodes. Until as recently as 2012, HTC was one of Android’s most popular handset manufacturers; at its peak in 2011, it had over 10pc of the smartphone market share. Today, its market share is at 1pc.
In August, it was declared effectively worthless when its market capitalisation fell 95pc, dropping below the company’s own cash pile of $1.4bn.
In its most recent third quarter results, it posted an operating loss of about $151m and revenue of $660 million, almost half the $1.3 billion from a year before – and a precipitous drop from the $1 billion in its preceding quarter.
The company, which will announce Q4 results at the end of this month according to Wang, will not provide guidance for the next quarter, or likely any future quarters.
Rumours of a private equity takeover or an acquisition are rife – in June the CFO of Taiwanese laptop-maker Asustek claimed it had “not ruled out possibility of buying HTC.”
When asked what went wrong, Wang doesn’t dodge the question. “Our flagship is in direct competition with several others, we have had some problems with it for two years,” she admits.
“I think the problem was competition – Apple, Xiaomi, these companies spend tons of money on communications and marketing, they pump a huge amount of investment into the market. There are a lot of Chinese competitors.”
Although Apple stands out as a profit-maker, HTC isn’t the only one struggling to sell its phones. Companies like Blackberry and Sony all have drowning smartphone units, and even Korean giant Samsung showed decreased smartphone profits last year.
In fact, data from IDC found that 2015 was the the smartphone industry's lowest growth year, at under 10pc. In 2014, the growth rate was more than quadruple that, at roughly 40pc. Even in China, the world's biggest market, smartphone sales fell 4pc in August last year for the first time, according to market research firm Gartner.
The market, particularly in the west and in China, is saturated. Most people are buying upgrades and replacements rather than their first smartphones. For high-end phone makers like Samsung and Apple, this works out well as they will keep selling expensive new models, but for lesser-known companies like HTC which are attempting to target entry-level consumers, their phones are simply being overlooked, partly due to smaller marketing budgets.
Although demand from first-time buyers is growing in the Middle East, Africa and India, competition remains tough, and the hugely lucrative Indian consumer tech market has its own strong local players.
So will HTC finally fold up its smartphone business this year?
Wang doesn’t deny this as vehemently as expected. “Now we are more realistic. We feel that we should apply our best design to different type of sectors,” she says. “Yes, smartphones are important, but to create a natural extension to other connected devices like wearables and virtual reality is more important.”
HTC will continue making phones for now, but to survive it will have to embrace the next big thing – just as it did with the very first mobile phone back in the 90s.
“We have a vision of smartphones with different types of form factors, it won’t always look like this,” she says.
The Vive headset, built in partnership with renowned gaming company Valve, could be HTC’s saving grace – its 360-degree room scale experience that allows you to literally walk through and explore virtual worlds, rather than competitor Oculus’ fixed-point experience, is genuinely pioneering. Pre-orders for the Vive will open on February 29th, Wang said.
But virtual reality is on the opposite end of the spectrum from smartphones – it is a completely new consumer segment, making it near impossible for analysts to predict if people will actually buy into its promise, just as it was with the iPod or tablets or the web itself.
Whether the Vive can single-handedly revive HTC’s fortunes remains to be seen. But in the meantime, Wang refuses to wallow in self-pity – she has one foot firmly in the future. “That’s what makes us different,” she says.