Afew years ago, big US players had the run of the global PC market. Today, the industry is taking on an Asian slant – and becoming "international" for the first time.
This is mainly thanks to the emergence of Lenovo, which scooped IBM’s PC-making division last year for $1.75 billion. And now chairman JT Wang of Taipei-based Acer has laid out plans to take on the US market in 2006 in order to position itself in the "top three" among Dell and Hewlett-Packard (HP).
Now the world’s number four PC player, Acer has set a profit target by shipments for the US market alone of $20 million this year with annual sales of $2 billion. These figures constitute 6.5 per cent of the company’s total earnings projection for this year and 16 per cent of its 2006 global sales target. In 2005, Acer recorded sales in the US of $1 billion, and held 3 per cent of the market.
Henry Wang, spokesperson for Acer, told OPI: "Currently HP and Dell dominate their home market of the US; comparatively, Acer is very small. Before 2000, Acer suffered losses in the US market, now we are approaching the market cautiously while we seek to expand our revenue. We are channel-focused, targeting the small- to medium-sized corporate market. Currently we have a lower presence in the consumer/retail market, but it’s a segment that we wish to expand on."
The key to Acer’s success, believes Wang, is the company’s channel business model which encourages partners and suppliers to collaborate for more efficient supply chain management. This, he says, will be the key to taking market share from the big players. "This model has been implemented across all of our key markets. The key to this model is the same set of methodology to understand market needs. The PC market is a mature market with clear global standards; therefore we believe it is feasible to apply a universal set of methodologies across all major markets. Our success so far already proves the long-term sustainability of our model."
Acer, which posted estimated total revenues of $9.7 billion in 2005, has certainly been a success in Europe. A few years ago it went in with mobile PCs with low price points that others found hard to match. As such, it found a welcome space in the market.
But it is through solid notebook sales that Acer is marking its global territory. Its highest revenue earner in terms of IT products (it also has successful LCD monitor and LCD TV product lines), notebook sales allowed Acer to unseat Toshiba as the world’s number three notebook brand in Q4 2005, with a mammoth year-on-year growth of 66.7 per cent, according to Gartner. This growth, which occurred predominantly in EMEA and Asia Pacific, allowed the company a 12.2 per cent market share against Dell’s 17.1 per cent and HP’s 16.5 per cent. But Acer has said it hopes for a similar growth in desktop PCs.
"To boost our global presence, we must have a better balance of revenue contribution from our products and regions," said Wang. "Currently our notebooks generate the highest revenue among our product offering, our goal is to aggressively grow our desktop PC market. Region-wise, we are aiming for fast growth in the US and China… In order to become a top three player, we must have a substantial presence in the US, being one of the key PC markets."
But analysts claim it may be tough for Acer to replicate its European success in the US, where the market differs greatly. For one thing, 80 per cent of the European market is fed through the channel, so only 20 per cent is direct. In the US meanwhile, it is more like 50:50. This means there is less of a market available through the channel for Acer’s supply chain model, which relies 100 per cent on distributors to sell its computers, compared to Dell’s direct sale model.
Gartner PC analyst Ranjit Atwal told OPI he believes that although Acer has solid foundations, it will find the US market a challenge. "Over the last 18 months, Acer has started to get its distribution channel in place in the US. It is also competitive in price, and in mature markets such as the US, demand for low-cost PCs is growing. But in this mature market, it will be a challenge competing against Dell, HP and Gateway. Branding is a key factor for Acer – it is not really known in the US."
"Furthermore, although its channel business model that it is taking to the US is efficient in supply chain and cost effective, if other vendors have not caught up with Acer as far as its supply model goes, they soon will. Acer’s supply chain model is not as big a differentiator as it once was.
"Although Acer needs a presence in the US market, it will need to knock over the other players to make in-roads, which will be a challenge," added Atwal. "It will need a different strategy to what it has in Europe."
Acer has said it aims to lower its sales dependence in Europe to 50 per cent from its current 60 per cent plus, and increase sales in the US, China and the rest of the Asia Pacific region. To prove its dedication to push the Acer brand round the world, it has recently reached an agreement with Microsoft to pre-install Microsoft’s operating system on all its PCs, a strategy that – until new laws were introduced in April by the Chinese government – was not standard in Asia.
In addition, the company last month withdrew its representative from the board of directors at fellow electronics manufacturer BenQ and said it planned on selling its 7 per cent of BenQ shares in order to focus on its own brand name.
Atwal believes Acer will have to hold on to what it’s doing in Europe and increase its share of business in China against Lenovo to be a top three player. But he is quick to add that the US market also has its limitations. Just last year it was taken over by Europe as the second largest PC market. Atwal believes it could soon be taken over by Asia Pacific as well.