Acer Looks to Build on Netbook Gains

Pop quiz: Who’s the third biggest supplier of PCs in the world? If you guessed Acer, that’s right. The Tapei-based company trails only HP (NYSE: HPQ) and Dell (NASDAQ: DELL) and can claim leadership in at least one related area: netbooks.

The company reported its first quarter numbers Wednesday and, while the results weren’t pretty, they weren’t as bad as many other tech vendors either. Consolidated revenues reached NT (New Taiwan) $119.09 billion (US$3.51 billion), a 6.5 percent year-over-year loss.

Net income was NT$2.03 billion, (US$59.73 million), with earnings-per-share (EPS) of NT$0.78. That was a 31.4 percent drop from NT$2.95 billion (US$87.04 million) in the same quarter last year.

Still, President and CEO Gianfranco Lanci told analysts on an earnings call that the company shipped more than five million netbooks last year, beating the 4.9 million sold by its closest competitor, ASUSTeK Computer. ASUS got out of the netbook starting gate first with its Eee-PC.

The company expects to sell between 10 and 12 million netbooks this year, down from originally projections of 12 to 15 million, but still a hefty increase over sales this year. They seem to be the one area selling well, even better than notebooks, and Acer is now poised to be the king of the hill.

The Taipei-based firm wants to be the top notebook vendor in the world by 2011 and is reducing its drive to gain marketshare in desktops, since that’s on the decline, Lanci said on the call.

Not bad for a company that bought up the carcasses of eMachines, Gateway and Packard-Bell. “They have been a force. They are number two in portables and all the majors are watching them,” said Richard Shim, analyst with IDC.

Gartner recently released first quarter PC sales and listed Acer as number three worldwide behind HP and Dell, with 13 percent of the market, and the fastest growing at 26 percent year-over-year growth.

Having the leading position in netbooks isn’t all its cracked up to be, since it’s only a portion of the PC market, but it shows how aggressive Acer has been to get where it is now. “They’ve been willing to make sacrifices the bigger guys are not willing to make, like on margin. They are willing to take smaller margins, they are willing to be more aggressive and have a leaner organization,” said Shim.

He added that the acquisitions were more strategic than for assets or innovation. Packard Bell, for instance, gave Acer entry into Europe, while eMachines expanded its channel reach.

Acer is still a consumer and SMB play, though. “Commercial takes time and Acer is new to the scene, relatively speaking,” said Shim.

Next page: On the Android bandwagon

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On the Android bandwagon

Lanci said Acer’s main focus now was to be the global leader in smartphones and to eventually be number one in that market. That’s a very tall order for a firm that doesn’t have a product out yet to go against the likes of Research in Motion’s BlackBerry and Apple’s iPhone.

Lanci has previously said that Acer will release an Android-based smartphone before next year, but was noncommittal on Android-based netbooks anytime soon.

That is where they will have their work cut out for them, said Ryan Reith, senior research analyst for mobile devices at IDC. “There’s a few other PC manufacturers trying to get into this space because Android opens things up and allows for such opportunities,” he told

But these vendors are in a new market with new vendors – telcos – which operate very differently from the usual PC partners. What Acer has going for it, said Reith, is it owns a handset maker. It quietly acquired e-ten, a handset manufacturer that sells mostly in Asia and some in Europe.

“With that, I’m not quite sure how much of that they will leverage, but they did get professional and manufacturing capabilities, which could help them when they come to market with these devices,” said Reith.

But HTC, developer of the first Android phone for T-Mobile, is not sitting still and has many new innovations in the pipeline. Other vendors are looking at bringing out Android phones as well, meaning Acer can expect a competitive challenge.

“If they come to the telcos with a me-too play with no innovation, they will probably get the worst of the worst deals because they are an unknown brand in this space,” said Reith.

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