As HTC continues to battle a two-year financial slide, one analyst has suggested a merger with Huawei could be a way out for HTC. HTC and their fans had high hopes the HTC One would prove to be a product with enough popularity to at least turn the ship around financially. During the first half of 2013, HTC also started to concentrate on some unique marketing strategies, usually aimed squarely at market leader Samsung. To their credit, the HTC One is generally regarded as a premiere smartphone and has garnered extensive praise throughout the industry. Sales of the device did have a positive financial impact on HTC during the second quarter of 2013 when it was finally released, but not to the extent hoped for. Despite plans to model a sales strategy similar to many other major manufacturers, HTC sales are predicted to stay flat for the third quarter, leading some to question what other steps the company could take to prevent a complete collapse.
JP Morgan analyst Alvin Kwock, with the Asia Pacific office of JP Morgan, thinks HTC should consider a merger with Huawei. Kwock thinks such a merger would be a “game changer” as the two companies could combine their expertise in the smartphone market. HTC would bring the demand for high-end smartphones to the table and a strong, major consumer brand, items Huawei lacks. Meanwhile, Huawei has made inroads into the China market and has access to financial resources that could help HTC. HTC recently reported operating margins of only 1.5 percent for the second quarter. This small amount does not give them the room to tinker with the prices of their devices, putting them at a disadvantage when a company like Samsung starts knocking 20 percent off the prices of their competing top-tier smartphone, the Samsung Galaxy S 4. With more financial resources, HTC could continue to compete on price for a longer period of time.
According to Gartner Inc. numbers for the first quarter, HTC was the thirteenth largest mobile phone manufacturer, capturing less than 2 percent market share, while Huawei was the sixth largest grabbing just under 3 percent of the market. By combining, the new company would jump up to being the fourth largest manufacturer, skipping over LG Electronics and ZTE Corp. in the process. Only Samsung, Nokia, and Apple would hold more market share.
Do you think HTC should look at merger options as a way to escape the financial doldrums they find themselves in? Would a merger with Huawei make sense to you?