A few weeks ago, smartphone vendor Xiaomi raised $1.1 billion at a valuation of ~$46 billion. To put that number in perspective, the company was valued at ~$4 billion in a June 2012 funding round and at a ~$10 billion valuation in an August 2013 funding round. Congrats to the early investors - nothing beats a ten bagger in two and a half years…
Xiaomi’s rise has been pretty astounding: In the most recent quarter, the company was the third largest smartphone vendor in the world (behind Apple and Samsung), and the largest in China - just a few years after announcing their first smartphone in August 2011. Next year, the company hopes to sell 100 million units globally. The company has also unveiled tablets (MiPad), set top boxes (MiBox), a fitness band (Mi Band) and an internet connected Smart TV (MiTV).
Here’s what Yuri Milner, an investor in the most recent funding round (and an early investor in Facebook and Alibaba), recently told Bloomberg about Xiaomi:
“I don’t think there’s any company that has reached $1 billion in revenue as fast as Xiaomi. In every conceivable benchmark, it’s almost unprecedented in terms of its speed of growth.”
This article isn’t about Xiaomi; it’s about another company that popped into my memory when Xiaomi’s most recent funding round was making waves in the financial media: HTC.
HTC is another manufacturer of smartphones and tablets. After years of building phones to run Microsoft’s Windows Mobile operating system, HTC management decided to expand their focus: in October 2008, they released the world’s first Android smartphone (HTC Dream). That move paid off in relatively short order: in 2010, the company sold 24.6 million handsets globally – up more than 110% from 2009. Revenues nearly doubled in 2010, to NT$279 billion (nearly $9 billion).
The company’s success didn’t go unnoticed: HTC’s market value passed Nokia in early 2011, to ~$34 billion, making the company the third largest smartphone maker in the world (by market cap). Later in the year (third quarter 2011), HTC was the largest smartphone vendor in the United States, with 5.7 million units shipped in the quarter – nearly 25% of the market.
The praise from industry watchers rolled in:
“This is an awesome achievement for HTC, which has built a premium brand in a highly competitive market in just a few short years. It now has a strong range of 4G Android products, with devices ranged by each of the major carriers, and offers some of the most compelling and differentiated products found on the platform today.”
The stock was on fire: the shares had more than tripled in the preceding year (to April 2011), crossing 1100 TWD; with the company’s astounding growth rates and plans to move into emerging markets (already taking market share in China), HTC appeared to be unstoppable.
As Bloomberg noted at the time, the analysts agreed:
“Of 36 analyst recommendations compiled by Bloomberg, 29 say investors should buy HTC shares while none say sell.”
Unfortunately for HTC, competitors had other plans: products were launched to limited success in the coming quarters (with management saying they “dropped the ball” on design and engineering); even as they started to make improvements, they were overwhelmed by the eight hundred pound gorillas in the industry. Fast forward a few years: Galaxy devices and iPhones continued to improve on each iteration (backed by huge marketing budgets), as Samsung and Apple pulled away from the rest of the pack. For the most part, the Android wave (particularly in the United States) has been largely dominated by one surfer; maybe HTC can find solace in the fact that they were not alone…
In the fourth quarter of 2011, HTC’s revenues fell versus the prior year – just two quarters after unit growth was more than 100%. For the full year 2013, HTC’s sales were down by more than 50% from where they had been just two years earlier.
In 2012, HTC still accounted for roughly one out of every ten smartphones sold globally; in 2014, the numbers were closer to one out of every fifty – and declining. In May 2014, HTC dropped out of the top ten in the global handset manufacturer rankings (according to Canalys); their spot was taken by – you guessed it – Xiaomi.
At a recent 150 TWD, HTC’s stock is down nearly 90% from where it was four years ago; that’s not the result you would expect when 80% of the analysts following the name told you it was a buy.
In mid-2014, with the stock trading near current levels, none of the thirty-one analysts who were following the company recommended buying the shares (according to Bloomberg).
Conclusion
When HTC’s CEO Peter Chou was asked recently about Samsung’s dominance, he was quick to note that this is nothing new in the industry:
“The market can change… Once Nokia was like that. Once Motorola was like that. Once BlackBerry was like that.”
Change – it seems to be the only constant in the consumer electronics business…
