The Rise of Acer

Drew Cullen at Channel and Register has an interesting piece on the rise of Acer as a global brand. Cullen writes:

In recent years, sales of PCs have consolidated, big-time. The US and Japan are the only mature economies in which there are many significant ‘local’ PC makers – but they tend to have names like HP and Dell and NEC and Fujitsu.

In the US and in Europe, the national champions of yore have mostly fallen by the wayside. In due course the emerging economies will follow suit – maybe another Chinese PC maker will break out, to join Lenovo.

Acer saw that average selling prices were under price and margin pressure, that without differentiation, things could only get worse, and that raw performance was becoming an inadequate differentiator. The PC market was already becoming the survival of the biggest.

Acer’s prognosis was commonplace. The remarkable bit is that Acer decided to do something radical, over and above outsourcing the tin-bashing.

In brief, the company decided to build a brand business, to major on notebooks, and target small and medium business and consumers in particular. Also, it looked to the developing world – especially the BRIC (Brazil, Russia, India and China) economies as another growth engine.

In the process, Acer has become something of a Global Brand, for which Taiwan is not famous. Remember, the company once was called Multitech, which shows how much it had to learn.

Cullen is absolutely spot on. Taiwan is not known for its brands and the OEM/ODM business is prevalent right through the value chain of Taiwan's hi-tech industry. Acer is unique in that they developed a powerful global brand without anyone really noticing them. ASUS has now followed Acer's lead and spun off their manufacturing into two separate companies (Unihan and Pegatron) and are focusing on building the brand.

Sadly many Taiwanese companies now don't realize that OEM/ODM manufacturing and brand building are in some ways diametrically opposed strategic initiatives and that they cannot do both. ODM/OEM manufacturers are all focused on cost cutting and savings whereas branded products are more interested in creating value added through services and features. Of course they do try to create the value added cheaply but they usually get what they pay for including poor features and bad service which ultimately degrades the value of the brand being created.

At any rate, Cullen's article is a good read and Acer's strategy may be a template or other companies trying to move through to their own brands. Then again, maybe not.

Channel and Register: Acer: We’re comin’ at ya, Dell

Wistron Chairman says Netbooks not a Threat

Earlier this year we noted concerns about netbooks cannabilizing the traditional notebook market in Will Netbooks Cannibalize Notebooks? and Impact of Low Cost PCs . Yesterday Simon Lin, the Chairman of Wistron, said netbooks are not a threat to the traditional markets. Digitimes reports:

Wistron chairman Simon Lin has reiterated his conservative outlook for netbook growth, saying that the position of traditional notebooks will not be affected by the rising role of netbooks over the next two years.

Acer and Asustek Computer might have over estimated the potential of the netbook market as margins from netbook production are still lower than traditional notebooks, said Lin. Netbooks are still uncompetitive in terms of their smaller keyboards and panels, and are therefore still a niche device, he added.

First, I personally think in the short term netbooks may have a chance of stealing short term market share. The current state of the economy and people's traditional concerns about money at times like this will make them more inclined to buy the cheaper substitute, and netbooks are substitutes. Given a decent economy and reduced economic concerns, I would say people would be more willing to buy the more expensive models.

Additionally, I think I said it before somewhere on this blog, I would think demand for more expensive notebooks is probably more price inelastic than say the cheaper models. I would think demand for US2,000 or above notebooks would not be threatened by a smaller US500 model. However, I do think the cheaper notebooks positioned at entry level users (US1,000) may face a bigger challenge.

Digitimes: Netbooks will not affect traditional notebook sales in the near term, says Wistron chairman

Wistron has a Good H1

One of Taiwan's leading ODM companies, Wistron, has posted a 50% increase in gross profit for the first half of the year. The Taipei Times reports:

Wistron Corp (緯創), one of Taiwan’s leading computer and peripheral original design manufacturers (ODM), reported yesterday a first-half gross profit increase of 50 percent to NT$11.01 billion (US$350 million).

The company attributed the increase to strong shipments of notebooks and liquid-crystal displays (LCD). However, Wistron also warned of slower shipment growth of about 20 percent in the third quarter, falling to below 10 percent by the fourth quarter.

The firm’s current customer base includes large computer firms such as Dell Inc, Hewlett-Packard Co, Microsoft Corp and Sony Corp. Wistron’s product line consists of notebook computers, desktop PCs, servers, personal digital assistants and LCD TVs.

Wistron, once part of the design, manufacturing and services unit of Acer Inc (宏碁), was spun off in 2001. Earlier in the year, Wistron agreed to purchase the computer monitor business of Lite-On Technology Corp (光寶) for NT$9.2 billion.

“The business situation is in line with [our] original planning. The merger with Lite-On Technology will shift operating margins down slightly. Our second half margin projection is around 5.5 percent,” said Simon Lin (林憲銘), Wistron chairman and chief executive officer, during an investors’ conference yesterday.

As noted above, the company is expecting a slowdown in the Q3 and Q4. This slowdown is inline with earlier predictions by iSuppli and others. We noted this slowdown in contract manufacturing in Contract Manufacturing to Slowdown and Contract Manufacturing Growth Slows. Some are anticipating the slowdown in the industry will bring about some sort of consolidation.

Taipei Times: Strong shipments boost Wistron first half profits

Quanta still leading Notebook Manufacturing

Quanta is still in the lead when it comes to contract manufacturing of notebook computers. According to DisplaySearch, Quanta has 31% of the market. DisplaySearch says:

Among Taiwanese notebook PC OEMs, Quanta was the leading manufacturer with a 31% market share on a unit basis, followed by Compal at 24%, and Wistron with 16% share.

In fact, the top five notebook manufacturers were all Taiwanese including Quanta, Compal, Wistron, Inventec and Pegatron. These five manufacturers together captured 91% of the market.

Article: Quanta #1 Notebook PC OEM Maker in Q1’08; HP #1 Notebook PC LCD Panel Customer of Samsung, LGD and AUO

Taiwan EMS Companies Having a Good Year

China Economic News (CENS) reports Hon Hai Precision Technology topped NTD100 billion reaching NTD104 billions. CENS reports:

Hon Hai Precision saw March sales grow 18.8% year-on-year and up 12.7% from the preceding month, achieving the sixth-highest monthly sales in history. The company scored NT$301.8 billion (US$9.89 billion) in cumulative sales in the first quarter of this year, up 22.3% year-on-year but down 27.1% from a historic high in the fourth quarter of last year.

Meanwhile CENS also reports that both Wistron and Inventec have also done well in Q1. CENS says:

Wistron Corporation, one of Taiwan`s leading manufacturers of notebook computers, registered NT$34.268 billion (US$1.12 billion at US$1:NT$30.5) in sales in March, up 63.5% year-on-year and up 41.6% from the preceding month, hitting a historic monthly high.

CENS continued:

Inventec Corp., another large-sized NB manufacturer, registered NT$21.8 billion (US$714.75 million) in March sales, up 17% from the preceding month`s NT$20.75 billion (US$680.32 million) and representing a slight growth of 3% from a year earlier.

The company scored NT$66 billion (US$2.16 billion) in sales in the first quarter of this year and expects to see a 20% year-on-year growth in sales in the second quarter. The optimistic projection for the second quarter is based on the shipment growth in business-type and large-sized NBs.

Article 1: Hon Hai Saw Monthly Sales Rebound NT$100 B. in March
Article 2: Wistron Achieves Highest-ever Sales in March)