Will Google and HTC Combine To Bring Out The Next Nexus?

As the smartphone market is getting into a race with all the mobile makers trying to innovate newer and smarter phones with the best of the features cramped in the box, companies are also scrambling to hold on to their market shares. Currently, the best players are also facing shrinkage in their respective market holdings. With time, even the customer has become highly street smart. The moment a company comes out with a new smartphone with more sophisticated features than the existing smartphones in the market, the launching company sees a paradigm upward shift in the market share.

This means that the lifespan of the smartphones being launched are also getting shorter with time. This September Apple (AAPL, Financial) launched its latest iPhone 6, and customers worldwide started queuing up at the doors of Apple. This gave rise to a movement among the other smart gadget makers, and recently they are into a race of launching smarter and better mobile communication devices. Let us see how this race is shaping up.

The Nexus behind Nexus 9

One player in the smartphone arena, HTC (HTCXF, Financial), has been a laggard for a very long time. HTC has been engrossed in finding new ways to protect its wispy profits and quavering world market share, since 2011. After being heavily beaten down by the break-neck race between two of the smartphone majors Apple and Samsung (SSNLF, Financial), HTC once the forerunner in the smartphone segment, has fallen back for almost a couple of years now. This time, the guns of HTC are being trained not into the smartphone rat race, but on a high-end Google (GOOG, Financial) designed tablet- the Nexus 9. HTC’s share in the tablet segment has been diminishing to almost negligible in the past three year run. The Nexus 9, forecast to sell by year’s end, could reanimate and establish the company as a longer-term Google partner.

Independent smartphone analyst Wilson Miao in Taipei calculated that Google can manage to sell 2-3 million tablets per quarter, giving HTC $3 from per unit sales. The Nexus 9 will thus make up just 1% of HTC’s 2014 revenue, as tablet shipments across brands is trending a growth of just 9% worldwide this year. Going by the estimate of the Taiwan-based Market Intelligence & Consulting Institute, this is due to the smartphone market getting robust day by day thereby eating into the tablet territory on a global basis. Meanwhile, it’s important to note that HTC posted revenues of $2.1 billion in the second quarter with an operating margin of 3.7%.

In 2011, HTC had launched its 7-inch Flyer tablet with the company’s global smartphone market share peaking at 10.7%. However, the Flyer soon took a nose dip due to its pricing factor in the face of dropping U.S. dollar prices. “HTC’s global tablet share today is essentially zero, so any partnership with Google on the rumored Nexus 9 would be a big boost for HTC,” says Neil Mawston, global wireless practice executive director at Strategy Analytics in the United Kingdom. HTC’s world smartphone share has plummeted over the last three years to around 4% in the face of the market getting crowded with smarter phones, the rise of Chinese brands and more aggressive advertising by the Android king, Samsung.

What is Nexus 9?

The 9-inch Nexus 9 will be the world’s first 64-bit Android L tablet, meaning more memory and having the power to run like a desktop PC, says Jim Hsiao, an analyst with Digitimes Research in Taipei. He calls it a $400 ‘premium tablet’ for gadget geeks and high-end users.

The 9-inch tablet is not expected to become a revenue earner for HTC but will bring about a strategic change in HTC’s business climate. “Nexus 9 may not be a hit itself,” Hsiao says. “But it may be a fresh start for HTC to rejoin the tablet market and use the Nexus brand to revive its own tablet business, at which HTC failed years ago.”

According to the street whispers, Google would like to liaise with HTC for the hardware support as it had done in the past for Nexus 7 and Nexus 10 along with other vendors.

The final outcome of the Nexus

Google’s spokeswoman has termed the current market buzz as rumor and speculation, and HTC has yet made no official comment about Nexus 9. But the market is already busy doing its calculations of, two plus two equals to four, since no one is denying outrightly about the possibilities of the nexus between HTC and Google. The Nexus 9 will fill the blind spot in the Nexus series between Nexus 7 and Nexus 10.

In the past as well, the Silicon Valley giant had liaised with HTC for hardware design support and in this August, the 17-year-old Taiwanese firm that got its start from contracting for other brands indicated that it wanted to revisit that side of its business. Google is a likely a long-term client for HTC because it doesn’t compete with HTC directly in any segment.

Final takeaway

“Returning to ODM business does more good than harm for HTC in the long run as it helps the company boost economies of scale, production efficiency and negotiation power,” says Joen Yang, an analyst with the Market Intelligence & Consulting Institute. Whatever might be the case, in future something which is very clear is that the Nexus 9 will bring with it a fresh lease of life for the falling tablet market. Going by the thick and thin of the street whispers, this nexus is certainly going to rejuvenate the business health of HTC which was once a stalwart in the smart mobile communication devices market. Meanwhile, we should keep our lens focused on the probable Google-HTC nexus, and wait eagerly for the Nexus 9 release by the end of the year.