Taiwanese smartphone maker HTC is on a tear. This year alone, the company has released five Android handsets. Its next phone, the HTC Nexus One, aka the Googlephone, is among the most anticipated devices of 2010.

Just about a decade old, HTC looks like it is poised to pull ahead of much older and larger rivals such as Samsung and LG in worldwide phone market share. While the older companies' strength lies in now-declining "feature phones," or inexpensive, less-capable handsets, HTC's bet on the booming smartphone business is giving it a major boost. It has also acquired a powerful godfather in Google, the Goliath whose attention is now captivated by the mobile phone business and whose chosen partner is HTC.

"We have covered a distance in the last three years that many other companies haven't in ten," says John Wang, chief marketing officer for HTC.

About one in six smartphones in the United States in 2008 was a HTC phone, according to Nielsen Mobile. And with a slew of new handsets and a clever bet on Android, HTC is now the fourth biggest smartphone maker, after Nokia, Research In Motion and Apple. HTC's Android portfolio now includes the original G1 and MyTouch on T-Mobile, the Hero on Sprint, and the Tattoo and Droid Eris on Verizon. And while Nokia is struggling to get a grip on the U.S. market, HTC is gaining ground.

"HTC got into bed very, very early with Google and that has helped them," says Avi Greengart, research director for mobile devices at Current Analysis.

HTC has risen to prominence rapidly because it is young, ambitious and unencumbered by the legacy technology and old business that slow down its peers. Founded in 1997, HTC has always focused on designing and manufacturing smartphones – multifunctional devices with powerful processors – rather than inexpensive flip phones.

Its first product in 2000 was the the Compaq iPaq, a PDA that ran Microsoft's Windows CE operating system. PDAs were a hot product then, but HTC CEO Peter Chou realized mobile phones would be a bigger market. Chou started courting telecom operators in Europe with an offer to create customized handsets for them. By 2002, HTC had two phones out, for O2 in the UK and Orange in France. Soon HTC was cranking out handsets for T-Mobile and other European carriers.

Placing the right bets ———————-

But it's Android, the Google-designed open source operating system, that turned HTC from a boutique OEM (original equipment manufacturer, or contract manufacturer) into a mobile powerhouse. Over the last decade, HTC's CEO Peter Chou has quietly networked to build a fat Rolodex and strong relationships with some of the most powerful names in the industry. Android creator Andy Rubin was one of them. Rubin's company Danger had created the Sidekick, an extremely popular phone on the T-Mobile network. Chou's HTC would later produce a similar phone called the MDA for T-Mobile.

In 2003, Rubin founded Android, a stealth startup whose mission was little known beyond the fact that it would create software for mobile phones. But Chou and Rubin were already talking. In 2005, Google acquired Android. As the new operating system began to take shape, HTC seemed like a good partner for the hardware.

HTC at a Glance

Employees: 9,353 (at the end of 2008, up 45.5 percent from previous year)

Headquarters: Taiwan

Founder and chairman: Cher Wang

CEO: Peter Chou

Revenue: $1.05 billion at the end of the third quarter 2009, a 10 percent decline from a year ago. Revenue grew 28.7 percent in 2008 to $4.2 billion.

R&D Expenses: $643 million (2009)

"Google's OS required a pretty sophisticated handset and HTC knows how to do that," says a former HTC executive who worked with the company for two years but didn't want to be identified because he still works in the wireless industry. "HTC is aggressive and they have the speed of development to get a product to market early."

For HTC it was an interesting opportunity, though not without its risks.

"When we started to work with Google, we had no visibility at all," says Wang. "The (Android) platform probably would not even materialize and even if it did, it could be just another one in the market. But we shared the excitement."

So for three years before the first Android phone would hit the market, HTC poured engineers and researchers into a project aimed to create a phone that would run a brand-new operating system.

"We made the first Google phone that Google engineers used to develop Android," says Wang. "We had about 50 HTC people roaming around Google campus then, wearing the Google badge and eating the wonderful Google food. That was how deeply the two companies collaborated."

It also speaks to HTC's business model, says Greengart. "HTC likes to let someone else build the underpinnings for the phone and for them to work on higher-level stuff," says Greengart.

Focus on design —————

Unlike Nokia, HTC has been quick to adapt to fast-changing consumer tastes in mobile phones. When slider phones were all the rage, HTC created the MDA for T-Mobile. Slim phones, touchscreens, Android devices – HTC has them all.

HTC's ambitious expansion continues. Last year, HTC acquired One & Co., a San Francisco-based industrial design firm that has created products for Nike, Apple and Dell, among others. Over the next three years, it will spend $1 billion to create a new R&D facility near a Taipei suburb.

"We are the second or the third best design house in the world when it comes to mobile phones," says Horace Luke, chief innovation officer at HTC. "The trick of design is it is not just styling but also great engineering."

HTC has also been quick to understand that when it comes to mobile phones, looks alone don't cut it.

"They have done a lot of innovation on software in terms of the user interface," says Greengart. "HTC shipped a touch phone with a 3-D cube interface before most other handset makers."

In June, HTC announced Sense, a UI skin that would sit on top of the Android OS. Sense offers widgets for adding new features, brings together contacts from different sources, and allows users to set different profiles for work and home.

"With a lot of smartphones out there you have to go to four different locations – your Gmail, Flickr, Facebook or Twitter – to find what's up with one person," says Luke. "But content is content. It doesn't matter where its comes from."

Personalization will be another big trend, says Luke. "I firmly believe that the phone you have should never look like the phone I have," he says."If you love stocks and financial news that's what your phone should show. But if I am interested in Hello Kitty and manga then my phone should reflect that."

It's an idea Palm first offered up with the Pre. But since HTC's announcement, a Sense-like interface has become an important part of new smartphones such as rival Motorola's Cliq.

Creating a brand —————-

Apple's iPhone or Research In Motion's BlackBerry have become cultural icons. But when was the last time you heard someone say they wanted a "HTC phone?"

Even when the first Android phone was launched last October, it was called the 'Googlephone' or T-Mobile G1; the new Googlephone is called the Nexus One. Most customers forget the HTC brand in that context.

That's what Wang says he wants to change next.

"For many years, HTC has been the company behind the scenes," he says. "In the earlier days, we did not post our brand on the phones. But three years ago we made a decision within the company to build the HTC brand."

It's not just vanity. Smartphones are an intensely competitive market. At the top, Apple and Research In Motion both have strong brand recognition and a growing base of users. In the middle, producers such as Samsung and LG own a huge share of the feature-phone market, but are hungry to sell more smartphones. And at the bottom, contract manufacturers such as Acer and Asus are looking to crawl up the chain. For now, HTC still occupies the lower tiers of brand recognition. A stronger brand would translate to more clout, fatter margins and bigger revenues.

Branding is even more important in the smartphone world, where consumer tastes can shift quickly, crowning new winners and losers every few months. Having a powerful brand can shield a handset maker against some of these shifting winds.

"In my time at HTC, they went from $200 million in revenue to $1 billion," says the former HTC executive. "But you can't continue that unless you have a brand."

"It was becoming harder to innovate from one generation to another without a brand," admits Wang. "If you create a phone that sells well on one carrier it's not enough. The next version resets everything."

But, so far, HTC has not shown its commitment by allocating a hefty marketing budget for branding, says the former HTC executive.

Throwing money around won't help, says Wang.

"Brand value is like respect, you have to earn it," he says. "You can't buy respect. You can spend all the money you want to build the recognition but that doesn't mean anything. I want the HTC brand to stand for a great experience."

Creating a global culture ————————-

HTC doesn't want to be just another Taiwanese handset manufacturer. Despite its strong Asian roots, the company has tried to build an international business culture. Almost all of HTC's senior management is of Asian origin. The company has its headquarters in Taiwan and is listed only on the Taiwanese stock exchange.

Yet the company's primary language is English. User documentation, technical papers and even all e-mails and staff meetings at HTC's office in Taiwan are done in English.

"When Peter started at this company, he demanded everyone take an English test before they come in," says Luke. "He always had a vision that the company would go global."

Many of HTC's executives, including company founder Cher Wang, went to graduate school in the United States. But Wang, who belongs to one of Taiwan's richest families (her father, a plastics tycoon, was named the second-richest man in Taiwan by Forbes magazine last year), rarely grants media interviews.

HTC has also imbibed one of the greatest ideas of American business: It's okay to fail. HTC's R&D division has a "target failure rate" of 95 percent, says Luke. "A research lab has to come up with enough ideas that fail fast and fail early so you can learn and harvest the right ones," he says. "That's very different from the culture at Taiwan, where you have to be successful all the time."

While HTC is unmistakably aligning its future with Android, the company isn't willing to give up on Windows Mobile – at least publicly.

"Our commitment to Windows Mobile platform is unwavering," says Wang. "Both platforms are important. They match different people."

For HTC, the last 10 years have been a rocket-like rise. But the battle to stay ahead of the game has just begun.

"It's no longer a mystery what it takes to create a differentiated handset," says Greengart. Handset makers can either build their own operating system and hardware to control the user experience completely, as Apple and Palm have done. Or they can build on top of someone else's operating system, such as Windows Mobile, Symbian or Android. The danger with the second path is that if you can do it, others can too.

"As LG and Samsung create phones over and over again, they will soon come up with something that can beat HTC's," Greengart says. "When you are building on top of someone else's OS, other people can do that too."

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*Photo: HTC Hero (patrick h. lauke/Flickr)

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