Acer’s aspiration to eventually become the world’s number three PC vendor may have taken a step further. The latest figures compiled by International Data Corporation (IDC) show that Acer enjoyed on-year sales growth of 88% in the second quarter of this year. Acer chairman JT Wang, in a recent interview with DigiTimes, said his company’s success has proved that sales through channels have made a comeback in the PC industry, putting up a strong challenge against the hugely successful direct sales model championed by the US computer giant Dell.
Q: Some notebook makers in Taiwan say that Dell is watching Acer’s marketing moves very closely. Except for its recently launched low-cost notebooks and desktops, Dell seems to be losing the kind of momentum it gained from its direct sales in the past few years. You’ve been talking about a “duel” between direct sales and channel sales in the PC market. Can you elaborate?
A: The direct sales model has dominated the market for the last eight to 10 years because of Dell’s success. But I think now the two sides – the direct sales and channel marketing – are now in a 50-50 game.
Three years ago when I went to New York to talk to foreign institutional investors and channel partners about the merits of Acer’s new channel marketing strategy, they simply wouldn’t listen. But now they are convinced.
Some analysts with major investment funds have told me that what they are concerned now is to what extent Acer will impact Dell’s stock price, because Dell is the world’s PC market leader, and many investment funds have bought large number of its shares.
Q: Can Acer alone put up a 50-50 challenge against Dell?
A: It’s not just Acer. Now the side in support of channel sales has more confidence. As far as I know, Lenovo, which acquired IBM’s PC business, is ready to support the channel. Mark Hurd, the new CEO of Hewlett Packard (HP), is also planning to do the same.
Q: Dell recently launched notebooks priced as low as US$499. Many international PC vendors, including Acer, and notebook makers, originally did not think it could be a sustained pricing campaign, and the unprofitable models would disappear from the market soon. But now other players have been forced to follow suit. Is Dell still the company that makes the calls in the PC industry?
A: I’m not worried. Acer has the clout to play the game. After all, the key thing is how you can earn profit from a US$500 notebook. At present, only a few PC vendors can play the low-cost game with Dell.
Now international PC players, such as Toshiba, IBM, and HP, are trying hard to trim their operations in a “from-elephant-to-mouse” game, but Acer aims to turn itself from a small mouse to a large mouse.
The PC world – from vendors, makers, component suppliers, to channels and consumers – seems to have been “brainwashed” by Dell, believing that direct marketing is the only feasible model, and that the channel has no future. This is particularly obvious in the US. Many channel-based companies have been forced to abandon the PC business.
IBM, Toshiba, HP and others that did not pursue a direct sales model also began building their own direct sales businesses, which hurt their own channel partners. These top vendors could not have foreseen that their betrayed channel partners are now working with Acer and other competitors.
Q: Acer’s PC shipments are expected to reach 10 million this year. Can you give us a picture of Acer’s prospects in 2006? You’ve talked about Acer aiming at 10% of the worldwide PC market. How and when are you going to achieve that?
A: Acer’s branded business (chiefly PC hardware sales) will account for more than US$8 billion in revenues this year, and we expect 40% growth next year, to US$11 billion.
Taking 10% of the world’s PC market is the most important goal for Acer at present, and we expect to achieve that in 2008. Our own data show that Acer had 4% of the PC market in the second quarter of this year, and the share will increase a bit in the third and fourth quarters.
I think some of the key factors determining how fast we can reach that goal are how well Lenovo is going to fare, and whether HP is going to stay in the PC business. The US and China markets will be chief drivers for Acer to turn from a US$10 billion company to a US$20 billion company. Acer is already number one in Europe. We still expect growth in Europe in the next three to four years, but naturally the growth may not be as high as now. But Acer is still a “small potato” in the US, but we expect explosive growth of 200-300% there.
We expect to record US$20 billion in revenue from our branded products in 2008. Acer can grow without relying on takeovers. Acquisitions are not part of our present roadmap. Acer is growing fast, and acquisitions may create burdens and slow down the growth. But that doesn’t mean that Acer would never consider acquisitions of other companies.
Q: Do you think Acer now has everything it needs to become the world’s number three PC vendor?
A: Acer underwent an overhaul in 2000. At the time, Acer’s revenues were about US$2 billion, 22-23% of which came from the Greater China area. We thought at the time that in order to become a global brand, we had to have a home market. And the China region was the apparent choice because of cultural and ethnic ties with Taiwan. We invested a lot of material and human resources in China, hoping that the Greater China area would contribute 30% of the company’s total sales.
Now Acer has already become the world’s number five PC brand, but our business in China accounts for only 11% of our revenues. We’ve come to realize that we can’t operate in China as if it is our home market.
The US can be the home market for US vendors, and Japan can be the home market for Japan vendors. But we now believe China can’t be Acer’s home market. Whatever changes we may make to our operations or strategies in the future, we will only see China as part of the global market.
Q: Acer is probably the first Taiwan-based company that has stopped looking at China as its home market. Why the change?
A: Every company has its own specialty, and it must find a perfect match between its products and markets. A company will give priorities to its home market when devising its strategies, dividing its resources and developing its products. But that could “distort” a company’s operations, and waste its resources.
Acer is a careful and conservative company in the sense that it would never manipulate the gray area in China’s law, like many other companies operating in China – both domestic and foreign ones – do. But the “conservative” approach has resulted in Acer’s loss of 50% of its business opportunities in China.
We’ll still try our best to develop the China market, but that doesn’t mean that Acer will give up the “conservative” approach. What we are doing is adjusting our perspective, so that we can more objectively assess which markets should be given priorities.
Q: Does the change have anything to do with Acer’s new president Gianfranco Lanci.
A: Yes, of course. Lanci is European. He can’t understand why Acer and many other Taiwan companies are giving such hype to the markets in China and Taiwan. Lanci doesn’t have that kind of feelings that Chinese or Taiwanese people have for China and Taiwan, like me and Stan Shih (Acer’s founder). For Lanci, Taiwan and China are merely parts of the global market.
Q: What are the major reasons for Acer’s success in the past few years?
A: Speed and flexibility. We are also counting on those features to help us reach our US$20 billion revenue goal. However, it may be more difficult to maintain speed and flexibility in the future when you handle large orders of 300,000 to 500,000 units each.
Acer expects to ship 10 million notebooks next year. Monthly shipments may fluctuate by as many as 200,000 units. Speed and flexibility will have to be based on full cooperation between Acer, its ODMs, component suppliers and shipping and marketing partners. We need to maintain a business model excelling in R&D, services, technologies and products.
Currently, Acer’s operating cost in the US is only 4% of its revenues there. In Europe it’s 5-6%, which we expect to lower to below 5%. In China it’s 4%. For Dell, its revenues have leapt more than 10 times over the past 10 years, but its operating costs have remained at 9-10%.
We may have to thank Dell for plunging the sales channel into crisis, for it has forced more firms in the channel to cooperate with Acer.
Q: Dell aims to grab 40% of the PC market. Do you think it’s possible for Dell or any other players to achieve that goal?
A: Impossible. This is possible in the handset industry. But the PC is a highly standardized product, and I don’t think any player could dominate the market to such an extent. The suppliers of key components would not agree to such a domination. Dell has been graced by the “hand” – the key component suppliers pulling the strings from behind the PC industry. But now that “hand” is “moving.” With its recent success, Acer has received quite a lot of encouragement from that “hand.”
Q: Does it mean that if Acer reaches its 10% market share goal, that “hand” would move onwards to other vendors?
A: Definitely.
Q: What will be PCs’ proportion of Acer’s total revenues when the 10% market share goal is reached?
A: Acer will still be chiefly a PC brand, and PCs will remain Acer’s revenue generator. But Acer will also be a major global brand in “IT-centric” products. For Acer, both the digital home devices and the mobile communications markets are all IT-centric. We will gear up efforts developing these markets from an IT-centric perspective. It’s just a matter of when.
I have always believed that the good time to enter a sector is when it is enjoying high growth. That is the time when it has the most support and resources. Entering a new business is risky, with the average chance of failure being more than 70%.
Q: Acer now seems to be stressing profits more than innovation, which was Acer’s focus during the days of Shih. Apple has made a huge success in iPod. Is Acer able to do similar things?
A: Acer and Apple are completely different companies. Strictly speaking, Apple and Acer are not competitors. Apple is a US company, and it is the most innovative of all PC vendors, with years of experience in the industry. Apple represents an innovative brand from the strongest country in the world. The Acer brand does not carry such geo-commercial implications. Therefore, Acer cannot copy Apple’s operation model.
The return for innovation is slow in the PC industry. Intel and Microsoft are in almost complete control of the standards and technologies. The margins for PCs are very low, and the costs for innovations are relatively high.
Q: Why doesn’t Acer consider direct sales?
A: We know ourselves; we can’t do it the Dell way.
Q: What’s Acer biggest contribution to the PC industry?
A: Acer’s biggest contribution is to provide a “balance” in the PC market, convincing others that the direct marketing is not the only model. We’ve proved to the PC industry that with a right business model, one does not have to resort to price wars to gain market share.
This interview was translated from Chinese
Acer chairman JT Wang
Photo: Allen Lin, DigiTimes
Article translated by Rodney Chan and edited by Michael McManus
