HTC dials into China market, but who will answer the call?

Taiwan's flagship smartphone developer HTC is dialling into the mainland's middle-tier market to rebuild its global brand after a long decline, but industry analysts warn of stiff competition from lower-priced, similar-quality local brands.

"HTC will need to demonstrate to consumers they have something interesting and unique that their rivals don't, which may be a tall order, given a fairly unattractive product line-up outside of its flagship HTC One, which is well out of range for mid-tier buyers," said Mark Natkin, managing director of Marbridge Consulting in Beijing.

Failure to capture a share of the mainland's middle-tier consumers - those who can pay 1,000 yuan (HK$1,260) to 2,000 yuan per handset - would further dent HTC's long-term market share, relegating the Taipei-listed firm to a niche brand or, in the extreme case, lowering its value to buyout levels.

"I think HTC is going to shrink till it costs less so someone buys it," says John Brebeck, chief executive of wealth management firm SRG Financial Services in Taipei.

HTC says it has released about 50 models on the mainland since late 2010. It declined to comment further on its mainland plans.

Last month, it picked the mainland for the launch of its E8, a 2,784-yuan model that features a plastic chassis with many of the specifications of the high-end One M8.

The mainland's mid-tier made up 20 to 25 per cent of the 3G smartphone market, Natkin said. They are mostly urban and suburban consumers in the low to middle-income category. More than 700 million mainlanders use smartphones.

HTC gained a global reputation after 2010 with Android handsets and technical reliability that put it on a price and quality level with iPhone and Samsung Galaxy models. That year, revenues rose 93 per cent as it sold 24.67 million units.

Its market share slid to about 4 per cent after mid-2011 due to supply-chain issues and inconsistent advertising, analysts say. The smartphone market has also become saturated, making it harder to differentiate models.

Aside from under-30 gadget lovers, mainland consumers know relatively little about the Taiwanese brand whose initials once stood for "High Tech Computer". They follow Apple and Samsung plus their own smartphone brands, such as Coolpad, Huawei, Lenovo, Xiaomi and ZTE.

Local brands sell for no more than HTC-equivalent handsets and have better specifications in some cases, while HTC is set back by higher production costs, says Jeff Pu, research analyst with Yuanta Securities in Taipei.

"They think they have a brand premium, but they're not getting that feedback from China," Pu said.

To boost sales of the E8, HTC "has set a goal of enhancing its brand image" in the quarter to September, said Sophia Chen, an analyst with the Taiwanese government-backed Market Intelligence & Consulting Institute.

A distribution partnership with one of the mainland's mobile-phone carriers would further boost HTC's sales. China Mobile already sells some of its models.

"HTC will need to secure a major co-marketing and subsidy deal for its LTE smartphones with China Mobile if it really wants to take off in China," said Neil Mawston, global wireless practice executive director at Strategy Analytics in Britain.