Apr 08 AT 8:44 AM Nick Gray 75 Comments

HTC cuts the cord on Beats headphones as first quarter profits take a dive

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The past six months have not been kind to HTC. In late Q3 of 2011, the company announced that it was adjusting its earnings expectations for the quarter to reflect slow sales of its flagship phones. As the new year rolled in, things didn’t get any better. HTC reported results for Q4 of 2011, revealing that the company’s revenue stream was down 2.49% while total revenues for the quarter took a 25% hit as well.

Here we are, three months later, and things seem to have only gotten worse. HTC has announced that revenue for the first quarter of 2012 dropped 35 percent year over year while profits took an even harder hit – plummeting 70 percent in the same time period. Fortunately, there is a bit of light at the end of the tunnel. The HTC One which was unveiled at Mobile World Congress in late February has just gone on sale across Europe. Having received rave reviews, the HTC One X and One S are undoubtedly the best phones currently on the market and will soon be available in the U.S> market courtesy of AT&T and T-Mobile.

But HTC isn’t going to sit back and hope the HTC One can get the company back on track. According to Martin Fichter, product executive at HTC, the company will be cutting back on including Beat Audio headphones with any of their upcoming devices – a change which will help the company increase its profit margins.

An accessory like the headphone doesn’t factor in when someone is buying a smartphone. If they want a Beats headphone, they’ll buy it directly.Martin FichterHTC

Since the takeover of Beat Audio late last summer, HTC has included Beats headphone with the HTC Sensation XE, HTC Sensation XL and HTC Rezound. None of the three phones have been huge sellers for HTC and we can only imagine that the included Beats headphones have reduced HTC profit margins while driving up the cost for consumers- making the phones less appealing and actually hurting overall sales.

While the Beats Audio EQ profile on HTC devices is optimized for iBeats and Beats Solo headphones, the profile does work with other headsets. We do not know if HTC and Beats will continue to include optimization specifically for Beats headphones, but we don’t believe that should add any significant cost the the handsets.

iBeats headphones included with the HTC Rezound

Many may question the value of Beats Audio technology in HTC’s phones, but there’s no denying that HTC seems to be the only OEM interested in making smartphone audio quality better for consumers. Unfortunately, HTC is in a tough spot right now, hoping to get its footing back. Removing Beats headphones is certainly not the end of the world, but we think there may be a better way for HTC to leverage its subsidiary’s dominant brand in the marketplace.

HTC could turn the table 180 degrees and use its smartphones as a way to boost sales for Beats. Rather than including Beats headphone with their phones, HTC could simply include a coupon with every phone, giving customers a substantial discount on Beats headphones at a participating retailer. HTC would still be passing on value to their customers without actually giving anything away and customer would be able to choose which headphones they really want rather than having to go with whatever’s included in the box.

HTC has invested too much into Beats to abandon then on the side of the read. On its own, Beats is still a very profitable company which is should help HTC’s bottom line. What do you think HTC should do to leverage Beats in delivering added value to consumers?

Source: CNET

Nick is a tech enthusiast who has a soft spot for HTC and its devices. He started HTCsource.com (the first HTC blog) back in 2007 and later joined the Android and Me family in the summer of 2010.

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