HTC Becomes the New Research In Motion

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HTC, the Taiwan-based smartphone company, has taken on an eerie similarity to Research In Motion Ltd. (NASDAQ: RIMM). Its products have become an afterthought in an increasingly crowded market, but one in which Samsung and Apple Inc. (NASDAQ: AAPL) have taken almost insurmountable leads. The evidence that HTC has become a third-tier firm in the sector was made clearer with the release of its second-quarter earnings, which show exactly how badly the company has fared.

Revenue was NT$91 billion, a year-over-year decline of 26.8%. EPS dropped 56.9% to NT$8.90. HTC forecast the current quarter will be even worse. Nothing in the data suggested that matters will get any better.

HTC was, until recently, a booming success in the smartphone sector. Its Thunderbolt was one of the early and popular entries into the 4G market in the U.S. and was heavily promoted as a next-generation product. Today no HTC handsets are at the front of the shelves in consumer electronics and cellular carrier stores. Those places have been taken by the Samsung Galaxy S III, a wild success, and the omnipresent Apple iPhone 4S. HTC products will be pushed even further back in displays when the iPhone 5 launches in a few weeks and becomes the hot product promoted by most carriers.

HTC has begun to move down the path that Research In Motion did. One difference is the RIM has its own OS and HTC products largely run on the Android OS. But HTC is only one of an army of smartphones that use Google Inc.’s (NASDAQ: GOOG) software; the first among these is Samsung.

What will become of firms like HTC and RIM? In RIM’s case, the answer is that it almost certainly will be broken up or sold. HTC has so little cache left, that it may simply become a niche provider, and one that is much, much smaller than it is today.

Douglas A. McIntyre