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Acer’s Blunder Sends Up Warning Flares

{complink 38|Acer Inc.}, once a high-flying PC vendor, is licking its wounds — again. After what seems to be a serious misreading of market demand and equally disconcerting missteps in supply chain planning, the company is slashing its full-year tablet shipment target by 60 percent, dumping three million laptops into the European market to clear channel inventory and taking a one-time $150 million write-off in operating losses.

On Wednesday, chairman J.T. Wang said after a shareholder meeting that 2011 tablet shipments were revised downwards to between 2.5 million and three million units from the five to seven million units it expected to sell at the beginning of the year. Acer's Iconia Tab touch-screen tablets came out in April, and it's clear it can't catch up to {complink 379|Apple Inc.} and its market-leading iPad.

This also comes on the heels of other bad news. IDC's most recent report measuring PC market health indicated that Acer's shipments were down 16 percent in the last quarter following a 15 percent decline in the quarter before that, according to reports. Earlier this week, headlines in Europe touted that shoppers will soon see deep discounts on Acer products as the company floods the region with three million laptops and tries to whittle down excess inventory. Two weeks back, Acer put out a press release stating that the high channel inventory and disputed accounts receivable in EMEA (Europe, Middle East, and Africa) operations would result in a $150 million write-off.

These kinds of blunders boggle the mind. I know we still have a long way to go but supply chain practices, technology, and strategies have come a long way in managing the bullwhip effect. Given the amount of information, skills, and experience companies like Acer have accumulated, how could an OEM get so far off track?

Yes, Acer's is having a tough year. It's dealing with management reorganization issues, lower-than-expected sales, and confusion about where to place its bet as the laptop-netbook-tablet roulette wheel spins. (See: Acer Needs a New CEO, Plus a New Tagline and What’s Next for PC-Centric Acer?.) Then, there's the Apple factor. The iPad seems to be throwing everyone for a loop.

That can't be all that's going on at Acer. What happened to the agile Taipei-based company that only a few years ago elbowed its way to the No. 2 PC slot and posed a legitimate threat to the likes of Dell, HP, and Lenovo? Did it ignore the exception-management alerts flashing throughout its ERP system? Did it cross its fingers and hope the PC-tablet conundrum would sort itself out by the time its products hit the shelves? Is the recent change in leadership too much to digest?

The company's plans to correct the ongoing problems don't instill too much confidence either. The same press release cited earlier states:

    Acer does expect, however, to put business back on the right track soon. Acer will continue to identify the cause and related responsibility ownership, propose actions and make appropriate workflow adjustments to enhance future management.

Of course, Acer will take necessary steps; most companies would publicly say the same thing. But is it too late to save 2011? Should Acer set its sights on 2012, reassess its strengths, and devise a product strategy that would help it maintain a stronghold in the sector?

In the wake of Acer's slump, I also can't stop wondering if the situation is entirely different at other high-tech corporate headquarters. I imagine a fair number of senior OEM and EMS executives are demanding more accurate data from their supply chain teams. I can't imagine how supply chain professionals are responding. There's no good answer to this eternally perplexing question: How can we forecast anything when the market's in constant flux?

6 comments on “Acer’s Blunder Sends Up Warning Flares

  1. AnalyzeThis
    June 16, 2011

    I'm not surprised that Acer had to revise their tablet shipment numbers down, I think a whole bunch of other companies will find themselves doing the exact same thing.

    And just because these units ship doesn't mean they will sell: I fully expect to see a glut of tablets available at doorbuster prices this holiday season, as various companies scramble to unload excess inventory.

    While I suppose I will concede that a tablet market does indeed exist, at this point it's more of an iPad market: there are very few compelling reasons for a consumer to buy an device that isn't a iPad. This situation may change with time, but even when it does I don't believe the potential market is as large as many vendors envision it to be.

    Anyhow, back to Acer: I really can't speculate too much about their future, I just don't feel confident predicting where they will go from here. As you say, this is a different Acer than the company that elbowed its way into the No 2. PC slot while providing what I believe to be quality products at very, very competitive prices.

    Yes, their tablet strategy was probably too ambitious and unwise. And it is likely netbooks will not be the success they probably hoped for. But this is a company that still does a lot of things right, so hopefully this isn't the beginning of a long, slow, downward trend and they'll figure out a way to get back on the right track.

  2. SunitaT
    June 16, 2011

    I also can't stop wondering if the situation is entirely different at other high-tech corporate headquarters.

    I dont think the situation is entirely differnt at the other end. Infact despite the drop, Acer's numbers seem more encouraging than those given by tablet rival Motorola, which earlier stated it had shipped 250,000 Xooms.

  3. Daniel
    June 17, 2011

    Jennifer, I had noticed the same news in other medias too. This may either due to wrong market requirement survey or over production. I am not sure about management issues, but technically speaking Acer products are not competable with rivals in quality. Now a day’s majority of customers are giving much preference for quality products rather than low cost products.

  4. Jennifer Baljko
    June 17, 2011

    Really good points brought up here. Made me reflect on my own fickle consumer habits. Like DennisQ mentioned, holiday sales are incredibly likely as new products come out these quarters, so I'm holding off on getting one until then when I can compare price and functionality. While I like the iPad's snazzy design and “cool” factor, I'm not convinced it's right for what I need, especially at the price point. Although I own and love some Apple products, I'm not convinced Apple sets prices based on a promise to offer a higher quality product; Apple sells a brand people want and are willing to pay more for while providing features other devices may or may not do as well. For me, I want (and I suspect other potential tablet owners do too) a durable, lightweight device with a decent battery life that I can easily slide into my carry-on bag, use to read a book or a report on the plane or at the local cafe, and not care too much about if it gets lost, stolen, or trampled on while I'm on the road or renovating the house. So, maybe I'm going old school and will shop for one of these Acer products going on sale instead of fitting in with the “in” tablet crowd.

    What's also striking to me is how conversations like this highlight many high-tech companies' ongoing vulnerabilities. I'm with you – I think 2011 is going to leave several OEMs trying to make sense of this new niche with some bruised balance sheets and broken dreams. 2012 hopefully will provide greater clarity about how to play in, but by then, assuming Apple doesn't slip up, they'll likely be competing for a small piece of the pie. Unless pent-up demand causes a retail bum rush and spins excess inventory into a shortage situation. Given the supply chain bullwhip, that could happen, too.

  5. Anna Young
    June 18, 2011

    Tirlapur, I agree similar situation applies to other OEM's.

      However, the consolation is, according to reports, that Acer hope to achieve a turnaround by enhancing its R&D operations, let’s hope so, this may help to improve output and increase sale. Who knows, 2012 may prove different overall. 

     

  6. Himanshugupta
    June 19, 2011

    I agree with DennisQ that tablet market is more of an iPad market. Personally, i have more reasons for not buying a tablet than other way around. I read that tablet section is somewhere between laptop and smartphone but i do not concur. I do not think that companies can create space in consumer electronics for similar products. The more effort should be in the direction of better integration of the consumer products.  

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