After providing some context on Indonesia's current economic challenges, the editor notes that President Joko Widodo has reshuffled his cabinet, bringing in two new technocrats for key economic roles. However, concerns remain as the rupiah continues to weaken, nearing 14,000 to the dollar. If it crosses 15,000, an economic and financial crisis could ensue. The government must change its nationalist rhetoric and policies to boost investment and confidence, and disburse funds for infrastructure to prevent slowdown. With the right moves, Indonesia can still avoid meltdown despite challenging times.
They say bad news comes in threes: After Nokia and Blackberry, now it’s HTC’s turn
1. 56 | GlobeAsia September 2015
Technology
H
TC has been ailing for a while now, but
in August something truly shocking
happened: the market valuation of
HTC fell below its available cash on hand. This
theoretically means that should investors start to
buy up all of HTC’s stock at its current valuation,
the company would actually be paying those
investors to take it over.
In short this means that the company is
effectively less than worthless. In recent years the
company slogan has run the gamut from “quietly
brilliant” to “here’s to change” and finally “It’s
anything you want it to be,” perhaps betraying
increased desperation in a company looking for
its identity in a crowded marketplace.
It may seem strange to the average consumer
who has seen HTC churn out hits like the HTC
One M8 and the M9 that such a company could
just collapse. It almost strains credulity to think
that a company that just a few years ago held
a respectable 10.7% of the market share is in
trouble. How could the company that brought us
such hits actually be in such deep trouble?
No surprise
For those who have been watching, HTC’s
collapse should come as no surprise. As early as
October 2013, Computer World’s Mark Hamblin
predicted that HTC’s collapse would happen
within two years. That collapse began to take on
an air of inevitability with its $101 million net
loss in the third quarter of 2013.
This was the first loss in the company’s
history but even then the writing was already on
the wall. An analyst from Asymco pointed out
that “once a company begins to generate negative
operating margins from phone sales, that phone
business never recovers.”
His opinion was based on tracking the
fortunes of other former mobile behemoths like
Nokia and Blackberry, both of which had about
two years before some sort of liquidity event
(whether acquisition or merger) overtook them.
By August 15 this year, HTC had announced its
biggest quarterly loss of $253 million.
Poor strategic planning
HTC has a canon of phones that really start to get
ridiculous once you start listing them. There’s
the One, the One M8, One Mini, One XL, the HTC
Desire line, and that’s not even an exhaustive
list. The amount the company must spend to put
out these phones is a colossal waste of precious
resources for a company that should’ve been
paring down its line to a maximum of three
products. HTC decided to imitate Samsung
(which has an even greater stable of phones)
but without the safety net that is the rest of
Samsung’s portfolio.
Then there was an exodus of talent. When
HTC’s long-time head of design Scott Croyle
(credited with the design of HTC’s One line)
announced his departure in April 2014, few
expected that he would be followed so closely by
Jonah Becker (head of product design) who exited
just 11 months later.
The company barely had time to breathe
before HTC announced the exit of Peter Chou
from the CEO role and his replacement with HTC
co-founder Cher Wang. No business would be
unaffected by the loss of such key personnel but
the rapid exits gave HTC the air of a sinking ship
and doubtlessly affected morale negatively.
No other business to offset losses
The fact is that the profit on Android
smartphones is minuscule. A recent report from
They say bad news comes in threes:
After Nokia and Blackberry, now it’s HTC’s turn
As early as October 2013, Computer World’s
Mark Hamblin predicted that HTC’s collapse
would happen within two years.
2. September 2015 GlobeAsia | 57
R&D costs alone are prohibitive, not to mention
that each phone has to be designed, tested and
then marketed to the consumer. These costs eat
into manufacturer’s profits.
Add to this that the market has essentially
split with Apple in the high end and pretty
much everybody else in the “other” category.
Unfortunately for HTC, It is not economical for it
to make budget smartphones (although they have
tried) so they are really only competitive in the
high end. In that range of course, HTC is forced to
compete with Samsung and Apple, both of which
have massive cash reserves on hand and make a
greater profit per device.
The major issue for HTC is that it has no
accompanying business to speak of, while almost
every one of its competitors from LG to Samsung
are not dependent on their mobile business alone
to stay profitable.
When LG sells phones at a profit of 1.2
cents, it’s doing so because it sees the larger
implications of maintaining a market share in the
mobile space. The company realizes that a strong
mobile offering helps with its overall ecosystem
of products, but HTC has no such ecosystem.
Some phone manufacturers like Xiaomi sell
their phones almost at cost and then depend on
their app store for the majority of their revenues.
The fact is, of course, almost every other
manufacturer has some sort of ace in the hole.
Even Blackberry continues to trudge along in
some capacity because it has significant holdings
outside its mobile business. For HTC though,
there are no side businesses waiting in the wings
to offset its losses.
Attempts to diversify met with little success
It’s not as if HTC has not attempted to diversify,
it’s just that their attempts have thus far not
been what you would call a resounding success.
Take its $40 million investment in OnLive for
example. The company showed enormous
promise and HTC hoped the investment would
round out its mobile strategy. Instead HTC
had to book the entire amount as a loss when
OnLive went through corporate restructuring
in August 2012.
Other investments, almost $50 million in
Saffron Digital, an acquisition of Inquisitive
Minds for $13 million and an $18 million
investment in Dashwire all failed to mitigate
LG put their numbers at about 1.2 cents per
smartphone! The vast majority of the profits
in the smartphone industry (about 90%) is
captured by Apple with Samsung soaking up
most of what’s left.
Because of how the industry has come to
arrange itself, Android manufacturers build
hundreds of new phones every year for which the
Jason Fernandes
Tech commentator and the founder of SmartKlock.
HTC Corporation headquarters in Xindian, New Taipei City, Taiwan.
COURTESYOFWIKIPEDIA.ORG
3. Technology
58 | GlobeAsia September 2015
Assigning blame, and the road ahead
Wired published an article this August titled
“HTC’s Epic Tailspin Isn’t Even Its Fault,” where
they argue that because HTC innovated and put
out new phones with competitive features the
company couldn’t blame itself for its failure.
That’s a bit too charitable a view of HTC.
There’s quite a bit more to running a
company than putting out good products with
innovative features; strategic planning helps.
HTC should’ve seen the writing on the wall
earlier and discontinued all but an extremely
select group of core products. HTC’s situation
right now is a textbook case of a company failing
because it tried to be all things to all people
without the cash reserves that such an approach
would require.
HTC’s response to the crisis has been to
announce that it will trim its staff by 15%
to reduce costs. Unless trimming their staff
will also lead to a culling of the HTC cannon,
it’s highly doubtful that cost cutting alone is
going to solve this. Many a company (think
Apple in the 80s) has been saved by focusing
on a very limited set of products and ensuring
those products are the best they can be. This is
conceivably the best way forward for HTC.
They should shrink their mobile catalog
down to two or three devices. A high-end, a mid-
range and maybe a low-range. Because HTC is
best at making premium devices they ought to
focus on that, while also offering one mid- and
one low-range device at a competitive price to
lure price-conscious buyers in markets like India
and China.
The company will likely save quite a bit
on R&D and marketing costs once they cull
their catalog, and these savings can be put
towards lowering the price on whatever mid-
and low-range device they choose to offer
so that they can be competitive in this area
of the market as well.
HTC has a lot of fans and if it manages to
maintain its design DNA, their loyal following
will likely continue to buy devices the company
puts out. Cost-cutting can help, but HTC will
have to give some serious thought to their
strategic choices going forward and they have a
very limited window within which to fix this. In
other words, if HTC doesn’t shape up soon, their
products won’t ship out at all.
HTC’s losses. Not HTC’s fault perhaps, but poor
investment decisions have done the company
no favors.
Perhaps the greatest tragedy is what HTC’s
collapse does for the world of design. It’s no
secret that HTC as a corporate exudes great
design sense. The One series of phones, for
example, could easily go toe-to-toe with the
best in design. HTC alumni have gone on to
make their mark in excellent design -
the Gogoro scooter company was founded
by former HTC execs.
In fact, one of the most anticipated
smartphones in recent times is due to be
launched by Nextbit, again a company started
by HTC alumni, in this case the aforementioned
Scott Croyle, the former design chief at HTC.
It’s clear the loss of these executives was
a blow to HTC.
If HTC doesn’t shape up soon, their products
won’t ship out at all.
COURTESYOFHTC.COM
4. VOLUME 9 NUMBER 9 / SEPTEMBER 2015
Jokowi Reshuffles Cabinet: Injecting Urgency
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5. A Media Holdings Publication6 | GlobeAsia September 2015
Columnists
16 Paulius Kuncinas
Philippines’ budget gives
boost to health sector
20 Steve Hanke
Instability in China
52 Jamil Maidan Flores
Iran makes a nuclear deal and
comes in from the cold
56 Jason Fernandes
They say bad news comes
in threes: After Nokia and
Blackberry, now it’s HTC’s turn
80 Scott Younger
Travel by train
82 Keith Loveard
The gengsi factor
contentsVOLUME 9 NUMBER 9 / SEPTEMBER 2015
COmpanies
40 Karuna Murdaya emerges with
Hinet 4G LTE
Karuna Murdaya, a scion of the Berca
Group, is attempting to muscle in on the
4G LTE market.
44 Beyond safety
Volvo Trucks invited GlobeAsia to explore
its factories, test drive its trucks and
witness the Volvo Ocean Race in the
marque’s home town.
48 NavAir: Tired guardian
of Indonesia’s skies
Special reports
60 New economic ministers, new hope
President Joko Widodo reshuffled his
cabinet in the hope of injecting some new
thinking and urgency in economic policy
making.
64 Mineral smelting: Slow progress
The ban on exports of unprocessed
mineral ores in January last year was
designed to encourage the development
of the smelting industry, but little progress
has been made.
68 Sectoral Snapshot: Tourism
70 Smart cities: Slowly getting smarter
Indonesian cities have started to introduce
Smart City concepts to better serve their
citizens but much work lies ahead.
44
86
74 Innovation nation
General Electric Indonesia hosted the GE
Garage to gather the nation’s ‘makers’ and
expose new equipment to help take their
innovations to the next level.
77 GE’s global talent search
Book review
86 Exploring new areas in the Indonesia-
India partnership
India’s ambassador to Indonesia aims to
bridge knowledge gaps between two of
Asia’s biggest economies with the launch
of the book Masala Bumbu: Enhancing the
India-Indonesia Partnership.
EVENT
89 Indian ambassador’s book launch
celebration
90 President awards Bintang Jasa
Utama medal to Lippo Group founder
Lippo Group founder Mochtar Riady has
been awarded the Bintang Jasa Utama
medal for his services to the country.
living the goodlife
100 Horses, watches and the good life
Longines invited GlobeAsia to experience
the good life in the idyllic French country-
side.
Back Page
104 Dutch Business Office
90
6. 8 | GlobeAsia September 2015
T
hese are challenging times
for Indonesia. Once again
the country finds itself
trapped in a vicious cycle of a
fast-depreciating currency, a
slowing economy and the threat of
corporate bankruptcies.
It seems as if the country has
gone back to the dark old days of
1998 when political paralysis and
economic crisis created a deadly
cocktail. For the first time in nearly
two decades, the rupiah is trading
at close to 14,000 to the US dollar.
The country’s fiscal position looks
shaky and banks are starting to
feel the heat of non-performing
loans.
President Joko Widodo has reshuffled
his cabinet and brought in two strong
technocrats to occupy key economic
portfolios. Both Tom Lembong, the new
Trade Minister, and Darmin Nasution, the
Coordinating Minister for Economic Affairs,
have strong credentials and are market-
friendly.
But the talk in the business and
banking community these days is centered
squarely on where the rupiah is heading.
It is conceivable that the currency will
depreciate further and possibly touch the
15,000 level against the greenback. If that
happens, all bets are off and Indonesia will
be in unknown territory.
At that level, capital will flee, banks will
collapse and companies will go bust. As in
1998, the economic dislocation will quickly
transition into financial dislocation and
ultimately social dislocation.
The country is not at that point yet.
And it can still prevent an economic and
financial meltdown if the government
changes both its rhetoric and its policy
direction.
For the past 10 months since President
Jokowi took office, the rhetoric and
economic policy have been driven by
nationalist sentiment. The government
has banned imports on a wide range of
Editor’s Note
Editorial
Editor in Chief
Shoeb Kagda
Managing Editor
Yanto Soegiarto
Deputy Editors
Muhamad Al Azhari
Editor at Large
John Riady
Senior Editor
Albert W. Nonto
Denverino Dante
Contributing Editors
Farid Harianto
Steve Hanke
Scott Younger
Contributors
Suryo Bambang Sulisto
Wijayanto Samirin
Frans Winarta
Jason Fernandes
John Denton
Special Columnist
Jamil Maidan Flores
Reporters
Vanesha Manuturi
Dion Bisara
Art, Design and Layout
Gimbar Maulana
Elsid Arendra
Agustinus W. Triwibowo
Nela Realino
Wulan Tagu Dedo
Rudi Pandjaitan
Senior Photographers
M. Defrizal
Suhadi
Production
Assistant
Danang Kurniadi
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Déjà vu
products; made it difficult for expatriates
to obtain work permits; closed off certain
sectors to foreign investors; forced all
transactions within the country to be
in rupiah only; and talked openly about
supporting only Indonesian products.
That has scared off investors; caused
prices of beef to skyrocket; squeezed
liquidity in the banking sector; and
brought manufacturing to a near standstill.
Consumption, the main driver of economic
growth over the past few years, is
contracting rapidly and even consumer
goods companies are reporting sharp falls
in sales.
All is not lost, however. If the
government can get its act together and
disburse funds for large infrastructure
projects, it can stave off economic
slowdown. If it changes its tone on foreign
investors and expatriates, it can win back
market confidence. If it finds a way to get
Indonesians to pay taxes without fearing
reprisals, it might be able to strengthen its
fiscal position.
It is clear that strong, decisive action is
needed. Indonesia’s long-term economic
potential remains intact but its short-term
outlook is filled with uncertainty.
Shoeb Kagda
Editor in Chief
shoeb@globeasia.com
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