Acer: We’re comin’ at ya, Dell

The PC company that rose without trace

Acer is now gunning for $30 bil annual revenues by 2011 and to overtake Dell, the number two PC player, but I don't quite know when. The company acknowledges turmoil in the wider economy, but it is certain that trends are running its way.

“Achieving our business goal is not an issue," Acer chairman JT Wang said in a video address to the press corps in Budapest. People need PCs and they need the internet, so the argument goes. New classes of devices and form factors, such as cheap netbooks and “one-hand computers’ will fuel Acer, with people in rich countries using them as their second or third PC, while people in the developing world using them as their primary PC.

It also thinks that it can’t do this with one brand alone. To hit different types of customer, at different price points, it needs several PC brands. This, almost as much as scale economies, is why the company bought Gateway, in the US, and Packard Bell, in Europe, last year. With Gateway, it got eMachines, thrown in for good measure.

Acer is the sole top five PC vendors to operate entirely different brands – no Pavilion or Presario sub-brands for this firm.

Here is what the Acer Strategy Boutique has to say for itself:

By its very nature a brand builds exclusive and reciprocal relationships with a specific segment of the market yet cannot expect to create a dialogue across the entire market. The ability to communicate with diverse social-demographic groups can only be achieved through multiple brands, managed within an integrated multi-brand framework.

Quite.

Brand grenades

The company is pitching Acer as the small-premium / tech savvy brand for business and home users, across the world. eMachines is for the bottom feeders – you know, the type of people who shop at Aldi. The company has built two separate teams to target business and consumer channels with the Acer and eMachines brands.

On the purely retail-consumer, moms and pops and grandmoms and grandpops side, things are a little more complicated – Acer is retaining the Packard Bell name in Europe, and using Gateway everywhere else in the world. In due course, maybe a year or so, Packard Bell and Gateway product lines will be merged, more or less.

Packard Bell and Gateway will continue to run as independent divisions [eMachines on the other hand is now just a brand name, a play thing of the Acer sales teams]. But presumably, their management teams will merge at some point. So why two retail brands? Simple, Packard Bell has enormous name recognition in Europe, while Gateway can claim the same in America.

Chinoiserie

Last year, Acer chairman JT Wang mooted buying a Chinese PC maker to boost market share in the country. But in Budapest Acer’s Lanci noted that acquisitions were unlikely to make a big difference any more to the company, so large has it grown. He acknowledged that the company was weak in the business sector in China, but noted corresponding strengths in the consumer market. The rise of the consumer plays particularly well to Acer’s strengths.

True enough, but Acer for sure, should be doing better in China and for that matter, Japan, if it really wants to overtake Dell. Once Gateway and Packard Bell are fully digested, a biggish bolt-on acquisition in China would help greatly.

Without another acquisition or two, it is difficult to see just how Acer will overtake Dell – unless Dell decides to pedal backwards again. After a big stumble last year, Dell has recovered some lost ground in the PC market in H1, this year. The company’s move into retail in recent month appears to be behind much of the uptick. The company is in a honeymoon period with retailers, but how long can this last? Retail margins are lowest of all. Can Dell stomach this? No question about it.

But never mind Dell. Acer also has Lenovo, the world’s fourth biggest PC maker and until recently, no. 3, snapping at its heels. According to reports coming out of Germany, Fujitsu has lined up Lenovo to buy the consumer business of its European PC joint venture, Fujitsu Siemens Computers. That will close the gap in Europe.

So does Acer have any chance of overtaking HP? In a word, no. The company would need to build a server business, to build a service arm and to sell direct, if called upon by large corporates. And even then, it won’t be easy, as Dell, which has all these things in place, finds even now.

Does it matter? Does it matter if it fails to overtake Dell in the next three or four years? Not really. Acer’s success should not be predicated on the failure of bigger competitors. This is not a zero sum game: global PC shipments are still growing. And besides there is market share to be clawed still from the 30 per cent of the market controlled by “Others” – minus the bit that Apple owns, of course.

But it is easy to make mistakes in this market and it is easier to lose money – Acer’s operating margin is well under four per cent – and that is from a PC giant. It’s figures like this that made the likes of IBM and now Siemens want to get out of this business.

These days, the PC business is not simply the survival of the biggest. Without enthusiasm, energy and optimism, even the best run players might as well pack their bags and head for the exits. Acer has these qualities in abundance. Maybe, HP should be looking in the rear mirror, after all… ®