For those of you with students who struggle to do anything other than calculate ratio analysis… keep reading! This article is fantastic for getting students to think about inventory turnover in a very real way, using a company and a product that they are very familiar with.
Over the past few years we have seen many changes in the technology industry, only last year there were articles surrounding the death of the iPod after Apple stopped manufacturing the classic iPod. Now we are reading articles about the death of a whole technology company… HTC.
For those of you who don’t know, the company was seen as one of the early pioneers of smartphones but has this month slipped out of the top 10 phone makers globally. They started out as the High-Tech Computer Corporation in 1997, and currently have Cher Wang as their chairwoman.
In 2015 HTC had to slash its sales forecasts by more than 50% and their stock price has slipped to the lowest it has been in a decade.
Inventory turnover is a ratio that students think they understand but often have trouble analysing, it is the amount of days that it takes for a company to sell its entire stock (inventory). A lower figure is generally considered better, for example who would want to shop at a café or supermarket where the food has been there for years!? Or in this instance, in the smartphone and technology market, who would want to take months to sell their products, as often within 6 months a product/design/model could be considered out of date.
In HTC’s case, this year hasn’t been great for their inventory turnover, their most recent figure stands at 83 days… so almost 3 months for them to sell their products. When looking at ration analysis students are always taught to compare the figure to something whether it be a previous year (or time period), or the industry average of the competition. So if we look at the latter, in the same time period it took Apple just 15 days to sell their products. I would therefore ask the students here to compare the two and consider the impact that this could have on the company.
HTC is now having to not only compete in a global market with both Apple and Samsung but also with the Chinese entrants into the market – ZTE and Huawei.
This is a stark contrast from just 4 years ago in 2011 when they charted globally above Apple as the number one in the USA.
So what happened to HTC? Look at what Porter says in his Generic strategy theory, just who are HTC targeting? It isn’t using innovation enough to stand out at the premium end of the market, and it isn’t winning in the mid-range or budget range either! They are stuck in the middle with nothing to differentiate them from the competition and nothing to ensure that customers have a need to purchase from them rather than the competition.
So what can they do next? Apple have ventured into watches, as has Google – do they focus on App’s or continue in another way like Yahoo have done when they could no longer compete as a search engine?