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Acer must look beyond PCs after Lanci's departure

Agam Shah | March 31, 2011
Analysts say disagreements over how aggressively Acer should pursue tablets and smartphones may have led to departure

NEW YORK, 31 MARCH 2011 - In the wake of Gianfranco Lanci's departure as president and CEO on Thursday, Acer must move aggressively in the smartphone and tablet markets and step up its focus on enterprise PCs in order to remain a major player on the world stage, industry analysts said.

Lanci resigned from Acer over a conflict with the board about the best strategy for the company, including the importance of scale, growth, "customer value creation," and how to enhance its brand, Acer said in a statement. Acer Chairman J.T. Wang has stepped in as interim CEO until Acer finds a permanent replacement.

Analysts said Lanci's resignation may reflect a difference in opinion about how aggressively Acer should shift its focus from consumer PCs and pursue the markets for smartphones and tablet computers. Acer was one of the biggest sellers of netbooks, sales of which have been declining since Apple introduced the iPad last year.

In its statement Thursday, Acer highlighted the cautious approach it will take in the mobile device market.

"The personal computer remains the core of our business. We have built up a strong foundation and will continue to expand within, especially in the commercial PC segment. In addition, we are stepping into the new mobile device market, where we will invest cautiously and aim to become one of the leading players," Wang was quoted as saying.

The resignation came just under a week after Acer said revenue from PCs in the first quarter of fiscal 2011 would fall short of expectations due to weak demand in Western Europe and the U.S . Acer said PC revenue was showing declines of 10 percent from the fourth quarter of last year.

Since that announcement, Acer's stock has slumped 18 percent to Thursday's close of NT$60 (US$2.04) and Acer founder Stan Shih has called for changes in the company's focus. Shih, who is no longer involved in daily operations at Acer, was widely quoted by Taiwanese media as saying the company should increase emphasis on smartphones and tablets and other higher end mobility products, and less on PCs.

Acer will face challenges if it clings too hard to its traditional PC business, said Jay Chou, senior research analyst at IDC. Along with the decline in the netbook business, consumer spending on PCs has slowed, he noted.

Acer has been slower to move into tablets and smartphones than rivals such as Hewlett-Packard and Dell. And those companies are less exposed to shifting market trends due to their bigger share of the enterprise PC market, where sales are relatively stable with the corporate PC refresh cycle underway, Chou said.

The popularity of the iPad, as well as rival products running Google's Android software, has caused PC makers to rethink their strategies. PC powerhouses like Dell, HP and Lenovo all started shipping tablets to complement their PC offerings, and Acer itself also started shipping tablets earlier this month.

Acer must also step up its enterprise focus and be aggressive in selling higher-margin products such as servers, Chou said. Right now, Acer's servers go mainly into small- and medium-size businesses, and it will need to build up the infrastructure to support enterprise customers.

Lanci had been a proponent of Acer's enterprise push in the past, Chou noted. Acer acquired Gateway in 2007 to improve its access to commercial channels, although the company mostly failed to expand its sales of higher-margin products.

Stephen Baker , vice president of industry analysis at NPD Techworld, said it's hard to know exactly where the disagreement lay between Lanci and the board, but he too said it may have come down to how aggressively Acer should pursue non-PC markets.

“It’s pretty apparent there was a dissension over the level of commitment to the PC business,” Baker said.

Netbooks had been one of the biggest growth drivers for Acer over the last few years, and replacing that growth will be a challenge, Baker said. Beyond tablets, buyers are also ditching netbooks for aggressively priced laptops with full-size screens, Baker said.

Acer offers smartphones, but they should be more tightly integrated into the company's wider operations, Baker said. A big question also remains how much of an enterprise focus Acer wants to take as it diversifies.

An Acer spokeswoman declined to comment for the story, referring to the company's press release from earlier today.

"Acer needs a period of time for adjustment," Wang said in the statement. "With the spirit of entrepreneurship, we will face new challenges and look to the future with confidence."

 

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