Patent settlement a win for HTC, but company still needs better smartphones, analysts say

IDG News Service - Analysts say HTC still faces an uphill battle to rebuild its smartphone business amid heated competition, despite reaching a deal with Apple to settle their patent disputes.

On Sunday, HTC and Apple announced the dismissal of all pending patent litigation between the companies, and said they had reached a 10-year agreement to license current and future patents from each other. Terms of the settlement are confidential, but in a filing to the Taiwan Stock Exchange, HTC said the deal would have no "adverse impact" on its financial results.

For Taiwan-based HTC, the settlement frees the company from the costly legal battles that have threatened to block sales of its Android smartphone. Earlier this year, U.S. Customs delayed shipments of HTC's newest phones to the country in order to ensure the products had not infringed on Apple's patents. This forced HTC to lower its revenue projection for the second quarter.

"At least now, there will be no block of its shipments in the U.S.," said C.K. Lu, an analyst with research firm Gartner.

But the company's struggles in the smartphone market go beyond patent battles, according to experts, who point to the competition from Samsung Electronics and Apple. Just a year ago, HTC had over 10% of the world's smartphone market, according to research firm IDC. But in the third quarter this year, the company's market share stood at 4%. In contrast, Apple had a 15% share of the smartphone market, and Samsung 31.3% .

To try to revive its sales, HTC released a new line of Android smartphones this year, including the top-of-the-range HTC One X. So far, the phone has failed to match the popularity of Samsung's Galaxy S III, which outsold Apple's iPhone 4S in the third quarter.

Analysts noted that the patent settlement with Apple means HTC can spend more on marketing and research, which could help the company compete over time. For now, both Apple and Samsung are riding high from better brands and bigger marketing budgets.

"If you can't compete with Samsung for marketing, you have to figure out some way to outperform the product," Lu said. "I'm not saying (the HTC One X) is a bad product. It's just not outstanding."

To mount a comeback, HTC will have to focus more on releasing better products, experts added. The company's fortunes in the smartphone market began to decline when its former chief innovation officer Horace Luke resigned last year, said Dan Nystedt, vice president and head of research for TriOrient Investments in Taiwan.

"When he was there, they came out with some really beautiful phones," Nystedt said. "After he left, they haven't been able to replace him and put out the same caliber of designs, and it shows."