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What’s Next for PC-Centric Acer?

Since the March 31 resignation of {complink 38|Acer Inc.} CEO Gianfranco Lanci, consensus has been that he was unceremoniously pushed out because of the rapid growth in demand for tablets from {complink 379|Apple Inc.} and other equipment vendors. That may be partly true, but indications are that it’s not the entire picture.

In fact, a closer examination of Acer’s business strategy over the last three years could cause one to wonder why several other top executives haven’t resigned. Surely, Lanci should not be the only board member to get blamed for Acer’s shocking inability to read the emerging tablet market and put plans in place to launch a tablet in the first quarter of this year.

Acer has given mixed messages as it seeks to explain Lanci’s exit. Reports have surfaced that Lanci wanted Acer to surpass {complink 2376|Hewlett-Packard Co.} as the world’s largest seller of laptops, while the board wanted him to set his sights instead on competing with Apple's iPad.

However, a more penetrating look at the company shows that Acer lacks a diverse suite of product. Indeed, between its Packard Bell, eMachines, and Gateway products, the company has brands that compete against each other in the PC market.

It should be noted that Acer arrived at the number two spot as the world's second-largest PC vendor not because it developed innovative products with unique graphics, or powerful operating systems, or more storage space, or anything else that makes products in the PC market competitive. Instead, Acer's sales increased because it raised the number of unit shipments of PC by acquiring Gateway in October 2007 and Packard Bell in March 2008.

Since then, Acer has been stuck in the PC business, unlike HP, the number one PC vendor, and Dell at number three. A quick look at these two companies shows a diversified technology offering along with a merger and acquisition strategy that has empowered their hardware, grown their customer base, and expanded their revenue sources.

HP provides products, technologies, software, solutions, and services to individual consumers, small- and medium-sized businesses, and large enterprises. It has expanded its client base in the government, health, and education sectors. HP has also focused its operations around seven business segments: Services, Enterprise Storage and Servers (ESS), HP Software, the Personal Systems Group (PSG), the Imaging and Printing Group (IPG), HP Financial Services (HPFS), and Corporate Investments.

Last year alone, HP made not one but four acquisitions to expand its hardware and software technologies. It acquired {complink 5777|3Com Corp.} to boost its network switching, routing, and security solutions and bought {complink 5713|3PAR Inc.} to expand its storage portfolio into enterprise-class public and private cloud computing environments. HP acquired {complink 8261|Palm Inc.} for its webOS platform and family of smartphones (and rich portfolio of intellectual property) and {complink 8608|ArcSight Inc.} for its security and compliance management tools.

Dell has taken a similar path, offering a range of product categories including mobility products, desktop personal computers, software and peripherals, servers and networking, and storage. The company also offers Dell-branded printers and displays and a multitude of third-party peripheral products, such as televisions, notebook accessories, networking and wireless products, digital cameras, power adapters, scanners, and other products.

Dell's acquisition of {complink 4249|Perot Systems Corp.} was another strategic move that added healthcare customers and enhanced the company's services, including in applications, technology, infrastructure, business processes, and consulting.

Acer does not have a comparable history or strategy. The products are limited, and its acquisition and market development strategy have been PC-centric. It’s not surprising, therefore, that Lanci and the board of directors acknowledged they differed on “scale, growth, customer value creation, brand position enhancement and resource allocation and methods of implementation.”

Without additional revenue streams, Acer suffered a big blow in the second half of last year when sales of iPads hurt Acer’s netbook and notebook sales. In a market that has found an alternative to PCs, Acer's strategy of launching new products in large volumes and undercutting rivals on price may no longer be effective.

According to one report, Acer’s lackluster sales resulted in the company having three months' worth of inventories at the end of 2010. With weaker European and US sales, Acer said in late March that up to that time PC sales in the first quarter were 10 percent lower than the previous quarter.

In the meantime, both HP and Dell have tablets available on the market or are developing them for release later this year. Last week, Chinese PC maker {complink 9284|Lenovo Group Ltd.} launched its first tablet computer, the LePad. Lenovo — the company that bought IBM's PC division in 2005 when Big Blue decided it had had enough of the volatile PC business — is selling the LePad at its company stores in China as well as electronics retail chains, with online retail outlets already taking orders for the device.

As the competition for tablets heats up, Acer may find its tablets in a difficult position as the company goes head-to-head with the competition on price and product features. However, competing in the tablet market may prove to be the least of Acer’s problems. Developing a more comprehensive technology strategy that combines hardware, software, and services with a strong focus on strengthening customer value and channels of distribution may be a better way forward for Acer.

We'll have to wait and see if the departure of Gianfranco Lanci and the appointment of a new CEO will help Acer get back on track.

19 comments on “What’s Next for PC-Centric Acer?

  1. Anand
    April 4, 2011

    @Nicole,

    “With weaker European and US sales, Acer said in late March that up to that time PC sales in the first quarter were 10 percent lower than the previous quarter”

    Nicole this trend of drop in PC sales is specific to ACER ? or is it the start of the end of PC-era ?


  2. The Source
    April 5, 2011

    Hi anandvy,

    Certainly, Acer’s weaker PC sales in European and the U.S. at the end of last year do indicate that tablet sales had a negative effect on Acer’s PC sales, but it might be too extreme to say that this is the beginning of the end of PCs. In the next 18 months, when more tablets come onto the market, we’ll get a better picture of how strong the PC market is as it faces greater competition from newly introduced tablets.

    Let me thank you for your comments.

    Nicole

  3. Adeniji Kayode
    April 5, 2011

    Its too early to expect the end of PC and PC will still be around for a much pretty time but then with the introduction of the tablets, we should expect a drop in sales for PC. I feel the tablets still can not yet satisfy us yet without having a PC along side with them. Time will make a difference between PC and Tablets

  4. AnalyzeThis
    April 5, 2011

    Great article, Nicole.

    I agree that Acer's strategy leaves much to be desired. And from a branding standpoint, I think the Packard Bell, eMachines, and Gateway brands should be eliminated completely: I really don't feel they have that much value at this point; they're all brands I associate with sub-par 90's desktops.

    I think Acer makes a solid laptop and they've fairly well in that space. I think their tablets are doomed and they would have been better off sitting out and focusing on improving their existing offerings. Now maybe as a compromise they could have marketed a netbook with a removable “tablet” screen or something, but I believe they have no chance of competing with “me too” products in an already crowded tablet market.

    However, despite all the issues, I am optimistic: they're still in second place and perhaps a shake-up and some new leadership and direction is exactly what the company needs right now.

    This is a crucial time for Acer, but I'm rooting for them. I hope things work out, because otherwise they'll be swallowed up by Dell or HP much like they absorbed Packard Bell, eMachines, and Gateway.

  5. Adeniji Kayode
    April 5, 2011

    DennisQ: I agree with you on that.Acer needs to stir up creativity, look inward, study the market trends and come out with something captivating and new to move up in their market status.

  6. The Source
    April 5, 2011

    Dear DennisQ,

    I’m happy that you are optimistic about Acer’s future.  Remember, Apple had to invent a new line of products, but then it has Steve Jobs at the helm.  The next Acer CEO has to be brilliant at reading the  consumer market and satisfying their tech needs.    By the way, today’s news is that Consumer Reports ranked Apple's iPad 2 the best tablet on the market.  Acer has a tough road ahead. 

    To you and Adeniji Kayode, thanks for your comments.

    Nicole

  7. AnalyzeThis
    April 5, 2011

    @The Source, actually I disagree with you somewhat on your opinion that, “The next Acer CEO has to be brilliant at reading the consumer market and satisfying their tech needs” and that “Acer has a tough road ahead.”

    Acer does indeed need to have a CEO brilliant at reading the consumer market and satisfying their lust for new gadgets and they do have a tough road ahead… if they intend on competing with Apple.

    But I'm of the opinion that they do not need and indeed should not even attempt to compete with Apple: first of all, they'll never beat Apple at their own game, and second of all, it doesn't really make any sense to even pursue such a path. In my opinion trying to go heads-up with Apple would be dumbest possible strategy to pursue, actually. They don't need to worry about trying to make a better tablet than Apple, at all.

    What Acer needs to do is focus on what they do best, which is providing quality laptops, netbooks, and desktops in the low-to-mid-range price points. The casual/non-techie-type market is huge, and this is exactly where Acer needs to continue to focus.

    Their target audience is not techies and gadget lovers. It's people who just want a cheap computer that works well.

    Acer didn't get to be number 2 by selling to people like us.

    Anyhow, just my two cents.

  8. The Source
    April 5, 2011

    Dear DennisQ ,

    If you are right, and Acer should not even consider developing tablets to compete with Apple, then why was Lanci fired in the first place.  Acer has already said that it is getting into the tablet market precisely to compete with Apple, and it seems that the company was not pleased with Lanci's lack of planning with regard to a tablet strategy.  This brings me to my next point which is why are you so optimistic about Acer?    I think that the tablet market is one possible area of revenue generation, but Acer needs to develop other areas of business and enter different markets such as software and services etc.   That’s what HP and Dell have been doing.

    By the way, your thoughts are definitely worth more than two cents.

    Nicole

     

  9. eemom
    April 5, 2011

    It looks like Acer is behind on the market because its top level management did not share a succinct clear vision.  Things come to a screeching halt when there is different strategic opinions running the company.  Perhaps the CEO stepping down in the first step in recovery.

    If Acer is still trying to figure out their directions, tablets that are meant to compete with the iPAD are not the way to go.  I doubt that they will gain momentum since they are so far behind.  I agree that they need to develop a new strategy and not just try to compete in the existing markets in which they do not even currently participate.

     

  10. Nemos
    April 5, 2011

    Dear DennisQ

    “eMachines, and Gateway brands should be eliminated completely: I really don't feel they have that much value at this point; they're all brands I associate with sub-par 90's desktops.”

    My laptop which I am writing now is an emachine model 🙂 and I can tell his price when I bought it, it was much lower than other competitive brands. I can understand from the article that Acer it seems to have problems with the sales ( I think also because Acer late to oriented his develop process to tablets) but don't forget that it has very good rate value for money. I believe when Acer shows us a competitive tablet with good value for money maybe can hit even Apple's product.

  11. Anna Young
    April 5, 2011

    Acer lacks a diverse suite product, as is consumer target is low to mid range.

    Acer could improve on this market range and produce what they do best

     As clearly pointed out by Nicole, innovation is not their strong point.

     

  12. The Source
    April 5, 2011

    Dear Anna,

    You are right in pointing out that the key to competition is innovation.  You can't just win on lowering prices.  With regard to tablets, where Acer says it wants to be a contender, it's obvious that the company didn't produce a tablet fast enough.  When their tablet comes out later in the year, we will see what their sales are like.

    Thanks for reading my article, and for your thoughts on Acer.

    Nicole

  13. Adeniji Kayode
    April 6, 2011

    Innovation may not put Acer in the fore front right now but innovation can keep Acer in Market.

    Acer may not be competition conscious for now but then still need to study the Market and capitalise on what they do best.

  14. tioluwa
    April 6, 2011

    Well sometimes, a certain kind of change needs totally new leadership, not because the old are bad, but a change is just needed.

    Maybe a change in business strategy, maybe a new marketting strategy, but i don't think their lack of diversity is their problem

    How diverse is Apple's product range? If we think apple, we can only think iPAD, iPOD, iPHONE and that is pratically all they have, appart from numerous accesories which work with these three.

    Acer just needs to find its place and dominate it, whatever it is.

  15. t.alex
    April 9, 2011

    Probably Acer should follow others by strategize acquisitions as well as driving more innovation. As a consumer we can't really see what make Acer computer different from other brands still.

  16. KurtBS
    April 9, 2011

    Acer unfortunately suffers from being a brand that is more closely associated with low-cost laptops than with the premium devices required to significantly expand its profit margins. They also dropped the ball by lacking vision and innovation and have allowed other companies, like Apple, to secure themselves in the tablet pc market.

    The new CEO of Acer will have to be someone willing to think outisde the box by creating a high-end line of products and strategically placing itself at the front of the line with the next big “fad” in computer technology.

    Thanks a lot for this informative article Nicole. Great job!!

  17. itguyphil
    April 9, 2011

    If they think Premium, ther're going to have an uphill battle specifically due to the point you mentioned regarding Acer being known as the 'cheap brand'.

    Imagine the marketing and product superiority they will have to exude in order to get consumers to break the old perception and now see them as a real player (ie. competing with the Apple's & Samsung's of the world).

  18. Mr. Roques
    April 11, 2011

    I think Acer put (all/most/some) of its eggs in the netbook industry, which IMHO had a lot of potential until… well… the iPad came along and the whole tablet wave came along.

    Do I think the netbook industry has room to exist? umm… I really haven't made my mind. It probably has a very limited room for people that really, really need a keyboard but how else can it differentiate them from tablets?

    Acer isn't going anywhere.

  19. Wale Bakare
    April 13, 2011

    @Adeniji, i strongly agreed with you on that. Acer may find it difficult to compete well but fact remains that it will get going. Motivation is what gets you stated, habit that keeps you going. 

    Global population getting near 7billion, and more people are more fascinated with technologies and modern gadgets – Acer has already made a portion for its products in world market, with already established fanbase.  I think this will set to continue with its tablet computer launching.

     

     

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