Acer expects competition to cap earnings

Listen to this article

00:00
00:00

Acer, the world’s fourth-largest personal computer company, expects to achieve net earnings of no more than 4 per cent of revenue in the coming years, highlighting how intense competition in the PC industry is limiting profitability even for leading players.

“Our first target is getting net profit back up to 3 per cent of revenue,” said JT Wang, chairman. “In the next one to two years, we want to increase it further to close to 4 per cent, but then there will be no further hikes to 5 per cent and so on.”

Mr Wang said the company would continue to fight for market share, especially in the US, through aggressive pricing of its desktop and notebook computers. Profitability would be improved through strict cost controls.

The remarks show that for downstream Taiwanese electronics companies, the idea of shedding contract manufacturing operations in favour of branded sales – a strategy pioneered by Acer – is no panacea to save them from margin pressures. Analysts are closely watching how Acer will balance its quest for market share with profitability in the US market, where it lags far behind competitors.

Mr Wang said the company would reach revenue of US$1bn “with a tiny profit of a few million” this year. But once the US operations reached US$3bn in revenue, profitability would rise to levels in line with other regions.

“This is a continuation of their strategy of grabbing market share through aggressive pricing,” said Robert Cheng, an analyst at CLSA.

“But when US business gains scale, margins will rise.”

Dell, the world’s largest branded PC seller, is the only major market participant achieving double-digit profit margins.

Rivals HP and Lenovo also have low single-digit margins.

Mr Wang’s outlook came as Acer’s gross margin fell below 10 per cent for the first time since it restructured and spun off its manufacturing operations in 2001.

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.