HTC is in deep trouble. Here’s why

October 30, 2015, 3:41 PM UTC
Courtesy of HTC

HTC’s earnings are headed in the wrong direction after the company reported its second quarterly loss in a row on Friday. The Taiwanese electronics manufacturer posted a 4.5 billion New Taiwan dollar ($139 million) loss on revenue of NT$21.4 billion ($660 million). Revenue was roughly half of what it was during the same period last year.

At this time last year, HTC was turning a small profit. Now it’s posting big losses, although the company said its results were at the “higher end of expectations.” However, the company declined to publish future guidance on its profit or losses.

HTC is in trouble for two major reasons. First, the smartphone market is more competitive than ever. Last year’s revenue was buoyed by mid-range handsets under the Desire brand that sold well in markets like China. But those phones are increasingly competing against handsets from Huawei, Xiaomi, and other smaller manufacturers which may have stronger brands in China, and can often undercut HTC on price.

The company has invested in software and services, like its Blinkfeed social network, to fight smartphone commoditization and justify higher prices, but ultimately its Android apps have been inessential.

HTC did release a new device last month, the HTC One A9, which bears more than a passing resemblance to Apple’s iPhone. HTC said the device was met with “critical acclaim,” but it’s too early to tell whether it will be a strong seller.

MORE: Samsung’s long, international nightmare is over (for now)

The other major problem that HTC faces is that its long-term strategy to expand beyond smartphones appears to be stuck in neutral.

HTC announced in January that it planned to expand into connected devices and wearables, but so far it has failed to release even a single connected product in 2015.

Earlier this year the company revealed the HTC Grip, a fitness tracker developed in partnership with Under Armour (UA), but earlier this week the company delayed the wearable until next year. HTC also hasn’t announced a smartwatch yet, conceding that market to rivals like Motorola and Huawei.

HTC’s connected camera, the Re, has also failed to find traction since it went on sale late last year, and it currently retails for 25% of its original $200 price tag. While sales figures aren’t available, the Re app for Android has been downloaded fewer than 500,000 times.

The company has pinned some of its hopes on virtual reality and is planning to widely release a headset developed with Valve next year. But the virtual reality market is still relatively small, especially compared to smartphones, and by the time HTC’s Vive headset is released it will be in a three-way battle against similar products from Facebook-owned Oculus (FB) and Sony (SNE).

If there’s a bright lining to HTC’s woes it’s that the company still has a reasonable cash balance of NT$43.3 billion ($1.33 billion) so it can survive a few more quarters like this one while it figures its overall strategy out.

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