This is a too-late move by two companies each suffering under the costs of strategic blunders. The only group likely to feel great about it is Apple.
For HTC, it’s a matter of survival. In 2015, their stock fell by two-thirds, knocking them off the TWSE 50. Their share of the smartphone market has dropped from almost 10% six years ago to under 1% now.
To give an idea of how pessimistic analysts are as to their prospects, HTC’s current market cap is $1.88bn USD. Not only is that far less than their asset value, it’s barely more than their cash and equivalents (going into 2017).
In layman terms, HTC’s prospects are so grim that the company as a whole is worth less than the amount you’d get if you sold their inventory, collected their invoices, then took all their cash out of the bank.
This, naturally, has put HTC into deal-making mode.
This bail-out represents $1.1bn in fresh cash and a drop ofin operating expenses. Put another way, it’s a lifeline which they can use to try and regain a foothold in some other segment (which they seem likely to squander).
Now, as to why Google has interest in giving them a mountain of cash in exchange for 2,000 employees and a few IP considerations:
- Most of these employees had worked on the Pixel line (with the exception of the Pixel 2 XL, which was handled by LG). Given that HTC could likely only afford to keep them if Google kept giving them work, it made more sense for Google to bring them in-house — as both a move towards hardware/software alignment and as a sensible insurance policy.
- Though Android owns something like 88% of the smartphone market, Samsung outsells the Pixel by about 25-to-1. This is a real problem given the brewing fight between the two over voice assistant adoption (which represents a foothold in a very, very important future market). Samsung is to the detriment of the much-superior Google Assistant. This is going to drive some users away from Samsung while also stunting the growth of Google’s most important product.
- Worryingly, some smaller Android manufacturers have also begun building-in functionality for Amazon’s Alexa (including HTC’s U11 handset). This isn’t something Google can meaningfully prevent with contract manufacturers.
- Google’s newest hardware line is set to be announced next month, but suggest we’re not going to be impressed. Unless some killer feature has yet to be revealed, their new phones aren’t going to make up any ground on Samsung or Apple. Sitting around 1% market-share was fine for their initial launch, but they need to start making serious moves.
- Apple is loving all this. The real brilliance of their iPhone 8/X lineup is their proprietary ARKit running on their fancy new A11 Bionic chip. This is a defining example of why hardware/software integration matters. They’re going to be a solid year ahead on augmented reality (not to mention that the neural engine in that chip also amplifies the power of Siri and the phone’s advanced camera features). Given Apple’s ever-impressive retention rates, this is likely to permanently increase their share of the high-end market (outside of Asia at least).
In a nutshell, Google is taking a meaningful (if belated) step towards challenging Apple in the premium smartphone game — a battle mostly about winning on the voice assistant front. Given how the value of said feature increases with the amount of users/data (with early leads compounding), they’re likely kicking themselves for being so far back as to need to make this move.
That said, they have OS dominance, they have an insurmountable lead on the services side, and Samsung still has no viable path to an independent app market. This means they’ll never be that far back. They’ve just spotted Apple a bit of a lead.
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