By Sun Pei-yu

Published on Oct 11, 2006

HTC's smartphones have heaped profits not just on itself, but on dozens of big Western corporations too. What qualified HTC, small and obscure just a decade ago, to join the "symbiotic" systems of these major international players?

In a recent issue of BusinessWeek magazine, High Tech Computer Corporation occupied the fourth spot on a list ranking the 150 best-performing companies in Asia in 2006. Having taken a giant step forward from its 31st-place ranking in 2005, HTC found itself preceded only by Taiwan's Chinese Petroleum Corp., Sumitomo Metal Industries of Japan, and Indian copper giant Sterlite - some of the leading energy and natural resource operations in Asia. It was also sitting in front of the eighth-ranked Hon Hai Precision Industry Co., Taiwan's largest company.

"While many Taiwanese rivals have been suffering from shrinking margins and stiff competition, HTC is enjoying Google-like growth," noted BusinessWeek. And like the young Google, HTC, founded in 1997 by Cher Wang, stands out as an exemplar for innovative enterprises in Taiwan.

Support of Big International Operators

HTC has maneuvered itself masterfully into a position from which it plays leading roles in the "symbiotic" systems of the world's top information technology and telecommunications operators.

According to chief financial officer Hui-Ming Cheng, who moved over from Fubon Financial Holding Co. to HTC just this August, HTC enjoys an advantage over Taiwanese OEM companies that struggle to divvy up limited profits with clients like Hewlett-Packard and Dell. The difference is that its nifty gadgets have brought profits not just to itself, but to Microsoft, Intel, Texas Instruments, Qualcomm, and dozens of major European and American telcos as well. Consequently, these clients have been more than happy to share their resources to the benefit of HTC.

Flipping through the pages of any European or American business magazine one is sure to come across ads for major telecommunications companies or Microsoft's Windows Mobile platform that are centered around HTC's products--smartphones and personal data assistant phones that combine the power of computers with mobile telecommunications. Last year, a photograph of Bill Gates holding an HTC smartphone appeared prominently on the pages of major newspapers and magazines around the world.

"Everyone's advertising for us" is the way chief operating officer Fred Liu, his grey, shoulder-length hair pulled back into a ponytail, describes it. He says, "Making money has become a circle, a positive cycle. There is no terminal point."

Drawing Rave Reviews

Back in 1997, Microsoft was anxious to make the move from computers to mobile devices and take on Nokia's Symbian-powered handsets, which controlled three-fourths of the market for mobile phone operating systems.

HTC overtook Nokia in a single bound. It had developed the world's first PDA phone with computer powers. Based on the Windows Mobile operating system, this handset allowed HTC to break into the European market. In the wake of this success, HTC went on to release a succession of novel gadgets, including the world's thinnest smartphone and the first third-generation PDA phone. These remarkable devices not only offered new functions, but were also stylish, and drew rave reviews.

Moreover, global telecom carriers had found themselves faced with an awful predicament: with most consumers already using mobile phones, growth in revenues from mobile phone bills had maxed out. HTC's new Windows-powered smartphones could send and receive email and connect to the Internet. These were just the new applications the telcos had been waiting for, and they served to fuel growth in mobile phone revenues.

Statistics show that the average mobile phone user in Europe pays 25 euros per month for phone services. However, the telecom bills of those that use HTC smartphones featuring email and Internet functions average 76 euros.

In the words of one foreign investment analyst, "European telecom companies are highly dependent on High Tech Computer Corp."

Unwilling to Play Supporting Role

Just a small, nameless Taiwanese company only a decade ago, what qualified HTC to join the "symbiotic" systems of these major international players?

"The protocol of the two sides matched up," says HTC president Peter Chou, who, with his background in engineering, opts for the technical vernacular.

This "protocol" is the concept of creating value together. Chou observes that the business model of Taiwanese businesses is often to "destroy" value. They compete by imitating and copying one another. Foreign businesses, on the other hand, devise methods to create value by satisfying needs others are unable to meet.

"There's shared DNA across both companies," says Scott Horn, general manager of Microsoft's Mobile and Embedded Division.

Chou, who just graduated from National Chengchi University's Executive MBA program in July, once revealed to the program's director, Chwo-Ming Joseph Yu, that in his early days at Digital Equipment Corporation, he saw with his own eyes how foreign businesses exploited and stifled Taiwanese companies. With a deep sense of indignity, he declared, "I don't want to be one of those companies." Chou resolved that in collaborating with international companies his company would never play only a supporting role or serve simply as a supplier. HTC would be a leader in the creation of value and would play only major roles.

"HTC's roots grew from the days of Digital Equipment Corporation," says Fred Liu.

As it was the era when notebook computer OEM was the hot thing to do, the team of engineers from DEC that founded HTC vacillated for a while before making the bold decision to pursue handheld devices, in those days still a sector with an uncertain future. "At the time, no one knew whether we would succeed or not. We simply felt it was the right direction, and bravely threw ourselves into it," admits Liu.

Sure enough, the concept of combining handheld devices with wireless telecommunications met with strong support from the big international companies. Furthermore, the resources provided to HTC by these big operators were not limited to advertising. Crucial technological support was supplied as well. As it stands now, HTC is at least a year ahead of Motorola and other competitors when it comes to the development of smartphones that integrate 3G and other advanced telecom standards.

"We've earned more trust," says Chou.

Juggling the various resources of all these major companies is no easy task, but HTC's skill in integrating these resources lies at the heart of its competitiveness.

Combining two or three new functions within a single device could cause a breakdown of the device's original function. Even adding a single extra function might throw the first one into disarray. "Is it the chipmaker's fault, problems with the operating system, or is it because of us? This can lead to endless arguments," says Liu who often has to deal with the trouble of mediating such disputes.

Customization Prowess

Another one of HTC's strong suits is customization.

Taiwan's OEM mobile phone makers turn out products for just the few leading global brands. This means that each OEM company generally ends up working with no more than two clients. HTC, on the other hand, serves telecom companies in dozens of countries around the world, and each company has its own special needs that require individual attention.

In the first half of this year, the United States Census Bureau made the decision to equip each of its census collectors with a Windows Mobile smartphone, a task that called for a massive order of 500,000 handsets. Everyone assumed the order would fall to Motorola, since the US firm had already developed its own smartphones. As it turns out, the order went to the dark horse HTC.

The Census Bureau's reason: in addition to offering a wide variety of models, HTC demonstrated undisputable prowess in customization, met a diverse range of demands, and could already boast endorsements from the world's leading telecom companies.

"We've never simply made products that our clients think are good. That's the thinking of original design manufacturing," says Liu, finishing, "We define our own products."

Peter Chou's mantra: "Mediocrity cools passion." He applies the highest technological and aesthetic criteria to each and every product HTC puts out. For instance, not long ago, HTC released the world's thinnest clamshell smartphone, code-named Star Trek. However, before allowing this model to reach the market, Chou sent it back to the drawing board three times, because he felt it wasn't "sexy enough."

The way Liu sees it, the design work of the average OEM company is aimed at satisfying the client and keeping production lines running at full capacity. According to Liu, "The satisfaction of the client is not enough. Our designs come into being because the consumer likes them and thinks they are useful."

The Next Step: Branding

HTC crafts over ten new models a year, and the function and styling of each of these wonderful gadgets never cease to evoke an amazed "wow" from those who see them. "You almost never know what Peter is going to show up with in terms of new designs," Microsoft's Horn noted in BusinessWeek.

While it's hard to imagine what HTC's next creation will be, its next move is already clear--developing the HTC brand.

The green mobile phone logo of the HTC brand has already been secured to the facade of the company's headquarters. While a rumor has been floating around that the symbol is the work of an Italian graphic design firm, in actuality Peter Chou designed it himself. "Peter is our chief executive officer, but he's our chief artistic officer as well," says COO Liu, only half joking.

The success of the "HTC Model" has brought on an intense wave of imitation on both sides of the Taiwan Strait. "Smartphones are no longer a niche market," says Liu, a man who is clear about the challenges that are coming.

Last year, the Big Five of Taiwan's electronics industry kicked off their own efforts to develop Windows-based smartphones, and each has subsequently announced plans to release new models in 2007. On top of that, HTC's international partners Microsoft, Texas Instruments, and Qualcomm have established a joint venture in Beijing--TechFaith Wireless Communication Technology, Ltd., or what is being called "the new HTC." Employing 1,500 engineers, it is said to be the largest design house in China, and, with its sights set specifically on the development of PDAs and smartphones, this giant will be going head-to-head with HTC.

"Branding is HTC's only option for pursuing differentiation," notes one industry analyst.

All eyes are on HTC to see whether the firm's own brand will launch the company to new heights of innovation.

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