Taiwanese smartphone maker HTC has announced a ‘business realignment’ as part of its efforts to diversify away from the difficult smartphone sector, which will include a 15% reduction in headcount.

HTC indicated another round of streamlining was imminent during its recent quarterly announcement. Q2 was a major disappointment for the company, with momentum around its new One M9 stalling after just one month. Owner and CEO Cher Wang seems to have come to the conclusion that it’s become impossible to run a profitable business focusing solely on smartphones, so the diversification announced earlier this year looks likely to be accelerated.

“HTC is an inspirational company driven by innovative people, with a unique blend of expertise in hardware and software integration, advanced technology and world-class design,” said Wang. “Now, as we diversify beyond smartphones, we need a flexible and dynamic organization to ensure we can take advantage of all of the exciting opportunities in the connected lifestyle space. This strategic realignment of our business will ensure that each product group has the right focus, the right resources and the right expertise to win new markets.”

Apple is pretty much the only company that makes a profit from smartphone hardware. Large, diversified companies like Samsung and Huawei can afford to cross-subsidise their smartphone operations if they serve other strategic purposes, which highly streamlined companies such as Xiaomi are happy for the hardware to be a loss leader to create other mobile commercial opportunities. HTC has neither of these advantages and is highly exposed to a mature and savagely competitive smartphone market.

The wearables play is also highly risky, however. It’s not at all clear whether smart watches will appeal to the mass market and virtual reality has been around for years without taking off. It seems clear that HTC does need to diversify if it’s going to survive, but things look likely to get worse before they get better.