Clad in jeans, T-shirt and blazer, High Tech Computer Corporation (HTC) CEO Peter Chou's style at the unveiling of HTC's new Touch Diamond handset on the 86th floor of Taipei 101 is the spitting image of Apple CEO Steve Jobs, sans the old tennis shoes.

In a 180-degree departure from his ordinarily conservative approach to the media, Chou has agreed to allow CommonWealth Magazine an in-depth interview with HTC's new five-member leadership team, which includes himself, chief marketing officer Wang Ching-hung, who brought MAGIC Labs to fruition; chief innovation officer Horace Luke, the brains behind the Touch Diamond; chief financial officer and spokesperson Cheng Hui-ming; and executive vice president for global sales Jason Juang.

Upon introducing its intelligent handsets, HTC's business performance took an immediate turn. Despite a 2007 gross profit margin of 38.5 percent, outperforming Nokia's 33 percent, Chou remains vigilant.

"The company has grown too fast, and we need to beef up our personnel in various areas like finance, innovation, sales and marketing,"Chou says, noting aspects he would urgently like to address. "Our personnel structure right now is totally different from where we were three years ago, and everyone is really excited."

Early this year, Acer, the world's number-two notebook computer brand, acquired E-Ten Information Systems Co., Ltd., formally catapulting Acer, with its distribution channel advantages into the global hand-held device market. In a May interview, Acer chairman and CEO Wang Jen-tang told CommonWealth Magazine the current technological trend shows notebook computers supplanting desktop PCs, but that in three to five years hand-held devices will in turn supplant notebook computers. He added that the scale of that market will rival that of the current PC market, worth US$200 billion per year.

Taking a Bite out of Apple

On 9 June, Apple introduced its second-generation iPhones, shaking the world with rock bottom "competition killing pricing."In the past, Apple had always relied on a competitive strategy of offering cutting-edge innovation to sustain its higher-than-market-average prices. This time, however, Apple partnered with American telecom giant AT&T to offer its 8GB iPhone for just US$199 (about NT$6,000) thanks to generous AT&T subsidies, setting a new standard of pricing on smart phones that had previously started at NT$10,000 and more.

HTC shares, the best performing stock on the Taiwan market, took a beating, sliding down-limit (seven percent) for three straight days, losing NT$60 billion in market capitalization in the process. But the organizational culture within HTC had a secret plan of counterattack. If it had lacked backbone, gumption and capability, it would never have been able to now be vying with Apple for supremacy and it certainly would have lacked the capacity to handle the contract manufacturing for the Google Phone, due out at the end of this year.

It's Touch series, introduced last year amid a wave of touch screen interface hand-held devices, sold like hotcakes, moving three million units worldwide, an impressive accomplishment relative to the six million units of the first-generation iPhone sold by Apple, backed by its more than 30-year history and legions of devoted fans lining up outside of stores in the dead of night to purchase one.

Rapidly growing HTC has enjoyed unbelievable success in competing with Apple's iPhone, gushed an Asian Wall Street Journal report on the U.K. unveiling of the Diamond smart phone in May of this year. The report averred that HTC's performance has been quite impressive, for a Taiwanese company that was founded just ten years ago and until recently relatively unknown outside the industry.

HTC's Diamond will be available for sale in 34 countries this year. Apple's iPhone 2 is being initially offered in 22 markets, with future plans to expand that to 70 markets.

Although HTC sports a market capitalization of US$12.8 billion, it is a minnow compared to the US$156.4 billion market cap of Apple Computer. The gap in operating revenue is also enormous, with Apple's US$24 billion last year more than six times HTC's US$3.89 billion for the same period. Apple's earnings per share (EPS) last year hit US$4.04, more than twice HTC's EPS of US$1.64.

If we count only Apple's hand-held device business, however, operating revenue for iPhone products and services last year was just US$124 million. In the realm of hand-held devices, Apple remains a seedling in the early stages of growth.

And with its sterling reputation, HTC has put together a formidable array of suppliers, nearly all world leaders in their niche areas. The Touch Diamond gets its chipsets from leading Californian IC design firm Qualcomm, its wafer fabrication from Taiwan Semiconductor Manufacturing Corp., its digital camera lenses from Largan Precision Co., Ltd. and its faceplate from Swenc Inc. and Jtouch Corp. (The latter four are all Taiwanese firms.)

The iPhone 2 sources its components from Infineon Technologies of Germany, as well as United Microelectronics Corp., Largan Precision and Genius Electronic Optical (all Taiwan-based), while Japan's Sharp provides the faceplate interface, and Taiwan's Foxconn Electronics handles the case and final assembly. Most of the major suppliers behind the two competitors are notable Taiwanese manufacturers.

Products that Make People Go 'Wow'

Aside from the relative strengths of their respective suppliers, the business models employed by the two competitors involve differing strategies. Faced with intense competition, Peter Chou enlisted the help of Hewlett Packard China senior vice president Jason Juang to join hands in developing sales strategy.

Chou and Juang had been classmates in Taiwan's National Chengchi University's executive MBA program, and Chou, having earlier gotten wind of Juang's desire to leave Hewlett Packard, was desperately in need of a veteran strategist like Juang to help further develop HTC's branded business. Juang needed little persuasion to jump ship and join HTC.

"In Taiwan or China, what company has created a user experience that has changed the world? Even throughout all of Asia, in the past there's only been the Sony Walkman,"says Juang. "What I care about is whether we have the chance to make products that make people go ‘Wow,' and feeling like I'm a part of history."

Taking on the iPhone with the Touch Diamond will be Juang's first battle, to be waged within nearly all the world's telecom providers.

With Apple pursuing a business-to-consumer (B2C) business model targeting end users, HTC is going through telecom providers in a B2B2C strategy. Thus, its approach toward those telecom providers is different.

iPhone demands telecom providers subsidize its sacrificial US$199 price tag. With its deep connections with telecom providers, the HTC approach differs from the strong-arm tactics of Apple Computer.

"What telecom providers care about is: does the thing sell well and can it bring us a higher average revenue per user,"Juang believes.

According to statistics, European mobile phone users have previously paid an average monthly fee of 25 euros in line charges. Use of HTC's devices, with their email and Internet capabilities, has bumped up the average monthly take for telecom providers to 76 euros. In the case of the Touch Diamond hitting the shelves in June, even checking the weather will automatically link to the Internet, and telecom providers will be picking even more cash from the pockets of users. This is where HTC's value lies.

Relentless R&D

Even with the challenges that lie ahead, the world can't help but ask: what kind of culture is it that allows HTC to consistently design cool gadgets that are put on a par with Apple's, even to the point of driving industry development trends?

The answer is simple: Insistently taking on the tough stuff while providing sufficiently broad elbowroom for R&D. Such values are difficult to attain within Taiwanese companies, where contract manufacturing and cost-cutting remain the order of the day.

Here HTC has an ace up its sleeve, one with unlimited innovative potential yet with the nimbleness of an Olympic athlete: they call it "MAGIC Labs."

John Wang, who was in charge of MAGIC Labs up until a few of weeks ago when he became Chief Marketing Officer, explains that HTC's R&D arm sets no timetable on innovation. The mission of these technical magicians is to continually rack their brains and come up with ideas; at any one time there may be several thousand ideas percolating in the labs, Wang says.

Once a nascent concept emerges from MAGIC Labs, however, things change, and every day becomes more like a battle.

CEO Chou does more than provide space; he also compels his people to take their potential to the extreme in a relentless R&D culture.

"There's an advertisement that goes 'the pursuit of perfection, bordering on the extreme.' With Peter, it's more like 'the expectation of perfection to the extreme,'"Juang says.

HTC Chief Innovation Officer Horace Luke is a Hong Kong-born Chinese-American who during 10 years with Microsoft designed the first generation XBox and was the creative director for Microsoft's mobile operating platform. He was also the fundamental link in HTC's early cooperation with the software giant. One day Chou flew to San Francisco for an evening sit-down with Luke, cajoling him until the wee hours before finally persuading this innovative genius to come aboard.

"Without Horace's leadership, from a design perspective, we probably wouldn't have been able to achieve this product – including the TouchFLO 3D Interface you see here,"Chou says, pointing to the three-dimensional animated icons and slick, dynamic display whose many functions can be easily controlled with a finger. HTC was actually considering employing a 3D interface on its Touch series as early as last year but passed on it. As of today, Apple's iPhone still employs a 2D interface.

World-class Taiwan

With the establishment of its brand and the gradual internationalization of its business operations, Chou has recently been spending much more time pondering how to strengthen the company's financial operations, corporate management and other heretofore almost entirely neglected areas.

HTC's addition of Cheng Hui-ming from Fubon Group has now filled a previously existing management gap.

Cheng, named Taiwan's "outstanding chief financial officer"in 2002, is known for coming into a company, quickly getting a handle on key numbers, and analyzing whether resources and costs are being mismanaged. Since Cheng's arrival, market evaluations of HTC have gradually risen. With its move toward internationalization, corporate transparency is an absolute must.

Two consecutive years of close-quarters combat with iPhone have proven that HTC can compete on the same playing field and garner similar kudos as global innovation standard-bearer Apple Computer. An industry leader that has only recently jumped into the branding game, HTC continues to dazzle the market.

"I can proudly say: Taiwan can produce world class companies too,"Chou enthuses. "Why not?"

This is the aspiration not just of Peter Chou, but of all Taiwan.

Translated from the Chinese by Brian Kennedy

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Chinese Version: 宏達電新團隊撼動市場 周永明用鑽石機單挑 iPhone