The Repositioning of Acer
A Sleeping Giant Awakens
By Roger L. Kay
Acer held a major press conference last week, but you could be forgiven if you didn’t know about
it because the event took place in Budapest, Hungary, which isn’t exactly the center of the
technological world (unless you mark its two endpoints as the United States and China, in
which case it falls pretty close).

Acer shipped in hundreds of journalists and a few analysts to spice up the lot.  The company
feted us all for several days, throwing into the goulash a short ride on the famed Orient Express
and a gala dinner in a converted rail-yard roundhouse.

The business at hand, such as it was, consisted of a long, somewhat elusive ramble by senior
executives about the company’s new brand positioning.  There were products to see and touch,
lending a degree of substance to management’s claims, and a few private sessions where
middle-management executives filled out the story with presentations on shipping and planned
products.

Some observers may feel that Acer is just a thin retread of a Taiwanese ODM and lacks finesse
in branding.  Certainly, it’s no Apple.  But the company’s viewpoint has a certain logic, and its
results are hard to argue with.  Although Acer in the United States is still considered a rather
minor presence — primarily because a high proportion of its U.S. volume comes through its
recently acquired Gateway subsidiary — taken altogether its worldwide position is impressive.  
In PC market share, Acer is #2 in Europe overall and #1 in notebooks.  With its Gateway
subsidiary adding momentum to its growing Acer business in the United States, it has
managed to reach an 8% market share and is neck-in-neck with Apple for a #3 rank.  In Asia-
Pacific, while it has only a #4 rank, it is experiencing growth in notebooks of 70%.  It also has
strong positions in important developing markets like Brazil, Russia, India, and China.  Except in
the United States, the company continues to rack up healthy mid-double-digit growth in
notebooks, a market which it identified early and went after.  And you can scoff all you want about
Acer’s “buying the business” in retail, but it’s turning in an operating income of around 4% in all
regions save the United States.  In addition, the company has scale.  It will do close to $20
billion in worldwide revenue this year.  And it has one of the best operating expense profiles in
the industry, clocking in below 8%.

The main message of the conference was about how Acer is pursuing a multi-brand strategy.  
Through acquisition, it now has four main brands and a host of smaller sub-brands.  Gateway in
the United States and Packard-Bell in Europe are targeted at lifestyle buyers who like trendy,
premium designs.  The Acer brand is aimed at more technology-savvy customers who like to
feel in control.  Finally, eMachines is for price-conscious buyers who like simplicity and value.  
Not all brands will be used in all markets.  For example, the Packard-Bell brand was pretty much
ruined for the U.S. market by former management (when Packard-Bell was an independent
company) and occupies the same niche as Gateway.  So, they will be kept separate, Gateway in
the United States and Packard-Bell in Europe.  Under the Acer brand, the Ferrari co-branding
relationship has yielded stellar results, allowing Acer to use its design skills, Italian flair, and
relationship with the racing car company to forge a fast-selling and highly profitable “halo” brand
for all geographies.

Acer has correctly identified a market characteristic well known by automobile companies:
technology is not a purchasing driver anymore.  People buy computers like other consumer
goods now — for how they look and feel, for the brand attributes the vendor has managed
through marketing and advertising to attach to them, and for their ability to solve specific
problems, to do specific tasks that the buyer wants done.  While some might consider Acer’s
marketing yet primitive, its product positioning is très sophisticated.   

Another key choice the company made early on concerns distribution.  When the direct model
was being praised to the skies in the early 2000s, Acer chose to promote a channel-only
approach, a decision increasingly paying off as purchasing shifts toward consumers, who like to
buy in retail.  No channel conflict and good terms are what Acer offers, and channel players like
working with a supplier that has no competing back-door distribution.

On the product side, the company is making a big bet on new mobile form factors.  In the volume
thin-and-light category, Acer will focus on personalized design, battery life, and connectivity.  
Management believes strongly in the netbook category, defining it as small, light, low-cost, and
simple to use primarily for viewing and listening.  Another class of even smaller devices, mobile
Internet devices or MIDs, will be distinguished by their positioning as PCs with phone capability,
a simplified one-handed interface, and focused applications.

Behind closed doors, product managers showed off some pretty interesting application-based
devices, demonstrating an understanding that buyers don’t care a whit about specifications
anymore and just want products that solve their problems simply and intuitively.

Acer, which picked up desktop businesses with both the Gateway and Packard-Bell
acquisitions, is also moving ahead with desktop development, despite desktops’ much greater
market maturity and slower growth rates.  Over time, the company will move away from standard
25-30 liter towers and increasingly focus on ultra-small systems and all-in-ones.  Larger
systems will be reserved for the performance segments like gaming and home media centers.

Where’s Acer going from here?  Gianfranco Lanci, the CEO, has set the following goals for
2011: $30 billion in revenue with a 15% revenue growth rate, a #1 rank worldwide in notebooks
with a 25% growth rate, operating expenses of less than 6%, and operating income greater than
4%.  

The Acer brand came out of nowhere in 1995, but almost failed in the late 1990s.  It hung on in
Europe and began to rebuild from there.  As late as 2004, Chairman J.T. Wang said in an
interview that the company had lost $3 billion in U.S. retail, calling it a “sick ecosystem,” saying it
was “bad for everybody, consumer, supplier, and channel,” and declaring that he wouldn’t go
back there.  “I won’t do it,” he said.  But that was then, and this is now, and Acer is doubling
down on retail and consumers.  Competitors take note.  

© 2008 Endpoint Technologies Associates, Inc.  All rights reserved.
Letter From Budapest