March 31, 2011 5:39 pm

Tablets force bitter medicine on Acer

How badly did Gianfranco Lanci, Acer’s outgoing chief executive, misread the impact that tablets and smartphones would have on the global PC industry?

One painfully obvious answer is: bad enough to have lost his job. Mr Lanci on Thursday resigned with immediate effect from Asia’s biggest PC maker by sales after delivering two straight quarters of disappointing results that left the company struggling to retain its place as the world’s second biggest PC company.

JT Wang, Acer’s chairman who will now take over as chief executive, made it clear that Mr Lanci’s departure marks a break with the past for the Taiwanese company and a shift away from a strategy that, until recently, helped Acer consistently gain market share in a highly competitive industry.

“We were almost too successful in the past . . . but more recently the iPad [tablet computer] and other new form factors have had a very big impact on the PC market,” Mr Wang said. “We have to change our business strategy.”

In the past, Mr Lanci had set “aggressive shipment targets” that staff would have to struggle to meet. This worked well as long as the overall market was still growing – Acer could afford to undercut Hewlett-Packard and Dell on price because larger volumes brought in more revenue, and Acer’s bigger scale gave it leverage in negotiating cheaper prices from suppliers.

But, with lacklustre economic growth in the west and tablets taking a bite out of the PC market, “the pressure of not meeting the target was getting too high” and created friction within the company, Mr Wang said. The focus on boosting PC volumes has also taken resources away from Acer’s nascent smartphone and tablet divisions, he added.

The new Acer, Mr Wang said, would keep PCs as its core business but would put more effort into expanding its smartphone and tablet businesses, as well as increasing corporate sales. The latter requires a greater degree of after-sales support than do sales to individual consumers. Volume and scale were still important but “we won’t be in a hurry to charge to become the world number one”, he said.

Stan Shih, Acer’s founder, who no longer manages the company but retains a board seat, put it more bluntly. “It is no longer meaningful for Acer to pursue growth in sales volume. Acer should from now on focus on upgrading its profit margins,” he told reporters this week.

Analysts, however, are sceptical. Grace Chen, analyst at Morgan Stanley, pointed out this week that Acer faces “a very crowded market” in tablets and it is unclear whether “the $50-$100 price gaps [between Acer’s tablets and its competitors’] will be enough to attract consumers”.

Jenny Lai, head of Taiwan research at HSBC, said “there are a lot of new ideas, but they are not very convincing at the moment”, adding that Acer’s profit margins could come under further pressure if it does not keep growing in scale.

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