HTC Corporation

HTC

Industry Forces– High growth, high-margin– Intense competition– Competitors hogging value

chain

Customer Centric Strategy

Forward Integration

1

2

Portfolio Rationalization

3

Recommendations

Moving from an Unknown Phone Maker to a Differentiated Cost Leader

Core Competencies– Innovative ODM– Unknown Brand– Premium Priced Phone

Maker

Compelling Situations– Shifting needs of target customers– Un-captured values in value chain– Lack of economies of scale

Differentiated Cost Leader PositionD

iffer

entia

tion

Cost Leadership

highlow

low

high

Apple

RIM

Samsung NokiaHTC

HTC

Customer Centric Strategy

Buyer power influences the Market Trend

New Entrants (Low)

• Capital Intensive• Brand Awareness

Substitutes (Moderate)• Undifferentiated Products• Service providers control

switching costs

Supplier Power (Moderate)• Multiple

software/hardware providers

Buyer Power (High)

• Product Variety• Easily accessible

information/products

Existing Competitors(High)

• Intense Rivalry• Complements differ -

entiate product

Demand forecast confirms our belief

2007 2008 2009 2010 2011 20120

50,000

100,000

150,000

200,000

250,000

300,000

350,000

Worldwide Forecast for Smartphone Shipments

Buyer power influences the Market Trend

Customer Segmentation

Sophisticated Consumers

Large Enterprises

Casual Users

Apple

RIMSamsung, LG, Nokia

HTC

Prosumers HTC operates mainly in

the higher end of the ‘Prosumer’ segment

Product features and core capabilities best suited for entire Prosumer segment

Two pronged growth approach 1. Widen base to entire

prosumer segment. Matches capabilities + remains differentiated

2. Increase size of segment over time

Customer Centric Strategy enables HTC to become a differentiated brand

Diff

eren

tiatio

n

Cost Leadership

HighLow

Low

Hig

h

Apple

RIM

Samsung NokiaHTC

Limited Forward Integration Strategy

Smart phone Industry Overview

New Entrants (Low)

• Capital Intensive• Brand Awareness

Substitutes (Moderate)• Undifferentiated Products• Service providers control

switching costs

Supplier Power (Moderate)• Multiple

software/hardware providers

Buyer Power (High)

• Product Variety• Easily accessible

information/products

Existing Competitors(High)

• Intense Rivalry• Complements differ -

entiate product

Competitive Landscape

Design & Mfg.

Operating

SystemBrand Owner

Software

Services

Network

Operators

Apple X X X X

Nokia X X X Planned

Rim X X X X

Palm X X

Samsung X X

HTC X X

Google X X X

LG, Sony, Motorola

X X

Forward Integration to capture more value

Handset Manufact

urer

Brand Owner

OS Provider

Software Services Provider

Network Operator

As-Is To-Be

Handset Manufact

urer

Brand Owner

OS Collaborat

or

Software Services Provider

Network Operator

Capability matching: OS Collaboration

Collaborate Build Acquire

Costs Low High Med

Time to market Low High Med

Latest features High Low High

Fit with strengths High Med Low

Strengthen ties to attain closer coupling of handset and OS

Partners concentrate on developing and improving the OS. HTC concentrates on improving the UI

Leverage partners’ brand

Diversify OS portfolio

Support only Android Both Windows and Android

PROS

•Save on licensing fee• Provide choice of OS to customers• Promote competition to speed-up innovation in OS

CONS • Lose customers

• Nothing to fall back on• Continue paying licensing fees to Microsoft

Point of differentiation: App Store

Continue with Microsoft and Google App Stores

Develop an exclusive App store

PROS

Popular among developers Avoid risks

Control Selection Customized Appscompetitive advantage Sticky asset

CONS

Lack of control New capability

Forward Integration enables HTC to achieve Cost Leadership and capture Value

Diff

eren

tiatio

n

Cost Leadership

HighLow

Low

Hig

h

Apple

RIM

Samsung Nokia

HTC

Portfolio Rationalization

Smart Phone Industry Overview

New Entrants (Low)

• Capital Intensive• Brand Awareness

Substitutes (Moderate)• Undifferentiated Products• Service providers control

switching costs

Supplier Power (Moderate)• Multiple

software/hardware providers

Buyer Power (High)

• Product Variety• Easily accessible

information/products

Existing Competitors(High)

• Intense Rivalry• Complements differ -

entiate product

Portfolio Rationalization - The engine to finance growth

Problem: HTC ships too many SKU’s

400 SKU’s for HTC Touch

Target segment does not require such variety

US : Apple/Blackberry operate with 3 SKU’s

Asia/Europe: Variety exists for casual users; NOT our target

segment

Reduce costs by achieving Economies of Scale SKU’s consolidation to reduce manufacturing costs Focus on flagship products. Quality not quantity.

Focus on high margin products has paid dividends despite low brand recognition

2007

2008

2009

2010

2011

2012

-50000 0 50000 100000 150000 200000 250000 300000 350000

Operating Margins

Leader in our target market segment

Portfolio Rationalization enables HTC achieve Cost Leadership

Diff

eren

tiatio

n

Cost Leadership

highlow

low

high

Apple

RIM

Samsung Nokia

HTC

Going Ahead

Implementation Blueprint

Short Term Plan• Launch brand awareness campaign• Start portfolio rationalization due diligence• Strengthen collaboration efforts with OS providers and

network operators

Long Term Plans

• Plan to build App Store• Innovate ‘Hero’ product

Strong implementation plan will help mitigate risks

Risks Mitigations

Distribution Channels

Strategic portfolio rationalization

Marketing

Move to open source

Discontinuing products

No clear focus

Risks – Likelihood, Impact & Severity

1

2

3

1

2

3

Impact

Like

lihoo

d

Low High

Low

High

Value Proposition of Proposed Strategy

OS providers

Network operators

Customers

Promotion for their OS

Access to HERO product which is not exclusive

Access to a premium product Complete solutionNot tied to a single network operator

Success Sequence: Moving from an Unknown Brand to Differentiated Cost Leader

Diff

eren

tiatio

n

Cost Leadership

HighLow

Low

Hig

h

HTC: Current Position

Customer-Centric Strategy

Limited Forward Integration Product Portfolio

Integration

HTC: Future Position

What should HTC stand for?

• Apple = Simplicity

• FedEx = Speed

• RIM = Mobile E-Mail

HTC = “myPhone”

Appendix

HTC share performance

1/14/2004

5/28/2005

10/10/2006

2/22/20080

100

200

300

400

500

600

700

800

Share Price

HTC brand recognition

HTC

Nokia

Samsung

Motorola

LG

Blackberry

Apple

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

U.S. Mobile Phone User's First Brand Choice (as a % of total surveyed)

HTC performance

2004 2005 2006 2007 20080

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Revenues Net Income ROIC

Mill

ion

USD Percentage

Smartphone Product Cycle

SWOT Analysis – HTC

STRENGTHS Core competency: Innovation,

Hardware design and Manufacturing

Portfolio of strong products

Strong vendor relationships

OPPORTUNITIES Capturing a greater part of the value

chain

Create strategic partnerships

Shift in industry

WEAKNESSES Low brand awareness

Royalty Payments

Low economies of scale to drive costs down (compared to Nokia)

THREATS Financial Risk. Growing company

Change from price setter to price getter

Shift in industry