Are PC Shipment Volumes Meaningful

Yesterday we wrote that Acer had taken the number 2 spot in terms of volume for PC shipments in Q3 this year (Acer Rises to No. 2 in Q3 2009 ). Tony Bradley comments on this data over at PC World:

The third quarter sales figures brought great news for the PC industry-- sales are up! Following declines in the first and second quarters, global sales of PC's are up 2 percent for the third quarter, seemingly signaling a light at the end of the recession and IT spending glut tunnel. However, the news isn't all good.

See, here's the thing about statistics and numbers: they say what you want them to say. Good news can be extracted by focusing on the total number of actual devices that were bought and sold during the quarter. However, that statistic does not tell the whole story.

Bradley's perspective is that the shipments are not a significant indicator of the health of the company or the industry. His thesis is that absolute volumes are not as important as say revenue or overall profit and that while the small marginal increase in sales and the growth of Acer is not unimportant. There are other issues that need to be addressed. When speaking about Dell, he quotes Michael Dell who said "If we [Dell] wanted [market share], we'd go and sell a whole bunch of netbooks." The point being that Dell are focusing on long term revenue growth, profitability and not looking at incremental market share as it changes each quarter (quarterly myopia is an obsession and has played its part in the economic downturn).

When reading his article a couple of things sprang to mind.

First, while I do agree with Bradly that it is good for companies to focus on "long-term strategy and profit" it is unfair to say (or imply) that Acer or the Taiwanese companies aren't doing that. Of course they are. Getting into the netbook game was a long term strategy for both Acer and Asus and right now they are reaping the rewards of their planning and the advantage they are gaining from their strategic foresight when they launched the netbooks a few years ago.

Second, what is is Dell's long term strategy? No doubt they have some plans but as we have commented here before some industry observers believe Dell's business model is struggling to survive . Admittedly I haven't kept up and a lot might have changed since 2008 when the article was first published, but still, have they managed to realign the organization and their entire business model to be able to drive growth?

Third, what about the share prices? YTD Acer's shares have climbed from NTD40 per share to NTD80 per share (that is a %100 climb) whereas Dell has gone from US$10.54 to US$15.43. Certainly Acer is seeing the reward for their growth strategies (and to think I was thinking of buying Acer at NTD25 way back when, DAMN!)

Fourth, netbooks are a disruptive technology. Both Acer and Asus are aware of this. In "The Innovator's Dilemma" Clayton Christensen has highlighted the way disruptive technologies can bring down market leaders very quickly if they do not invest in these technologies. Yes, right now Dell does have very strong relationships with businesses around the world, but when the push comes to the shove and the netbook computers are increasingly adopted by businesses accross the board, Dell won't be in the game.

To stress, I am not here suggesting that Dell will fail. The world of business is too uncertain for such radical proclamations. The point here is this: Dell can carry on running along the lines they are going but right now technology is moving towards flexible, mobile devices that can be easily moved around and connected anywhere. I dare suggest that although sitting and doing nothing may be a long term strategy, innovation right through the value chain, gaining new market share, and becoming dominant in new market spaces is a valuable long term strategy that will reap reawards later. The experience curve suggests that as Acer, Asus and the others continue to grow in the netbook space, their cost structures will decline and when and if Dell do decide to enter the market space, they will be blown away.

PC WORLD: PC Shipments on the Rise, But at What Cost?

Acer Rises to No. 2 in Q3 2009

In Acer Climbing to No. 2 we noted that IDC reported Acer was the second largest PC distributor behind HP with a market share of 18.5%. Today Reuters reports Acer has surpassed Dell in Q3 2009 as well. Reuters says:

Taiwan's Acer Inc (2353.TW) surpassed Dell Inc (DELL.O) to become the world's No. 2 PC maker in the third quarter as worldwide industry sales proved surprisingly strong, spurring hopes that demand is rebounding.

According to Reuters Acer now has a PC market share of 14% while HP leads with a market share of 20.2% and Dell at 8.4%. Are Dell in trouble? ASUS and Lenovo will be fighting for more market share and both those companies may start to attack Dell's position in the market. Only time will tell.

Reuters: Acer passes Dell as global PC shipments rise

ACER Surpasses HP in Europe

Following up to our previous two stories this week Acer Climbing to No. 2 and PC Demand is Climbing the Guardian now reports ACER is no. 1 in Europe. According to the Guradian:

The Western European PC market declined in this year's second quarter, but only by 3.3%, according to the latest provisional numbers from Gartner. Acer increased its unit sales by 24.3% to 3.2m units to take top spot from Hewlett-Packard, which grew sales by only 1.4% to 3.0m units. This was mainly the result of Acer shifting almost half the netbooks sold in Europe.

Basically, the professional PC market plunged by 21%, hitting companies that sell a lot of business machines such as HP, Dell, Lenovo and Fujitsu. The consumer PC market grew by 21%, benefiting companies such as Acer, Apple, HP and Samsung -- those with more consumer-oriented products, and netbooks in particular.

Ranjit Atwal, principal analyst at Gartner, says: "Without mini-notebooks, the market would have declined more than 15%, but given the new routes to market and price points of these PCs, they have managed to prevent a more severe decline."

Well it seems the netbooks have helped ACER get ahead of the pack. It strange I see this today since last night I received an email from a friend saying how he enjoyed using is ACER laptop on a recent trip to the US. He said: "Acer seems to be making real market inroads here in the UK, and I much prefer their offerings to the Asus equivalents - they just look better built and classier." It seems he was right on the money.

Acer do need to be careful though. I have a friend whose ACER has failed five times and he has had to take it back to the ACER service center five times. They have not resolved the issue and, in my opinion, should offer the money back or give him a new PC. In Contemporary Strategy Analysis Grant wrote:

"During the 1990s, desktop PCs becoame commodity items idnetified by their technical specifications more than by their brand names. Yet, Dell Computer;s direct sales model allowed it to differentiate its PCs by permitting customers to design their own computer sustem and offering complementary services such as online customer support, three-year on-site warranty, web hosting, installation and configuration of customers' hardware and software." (Chapter 9, Differentiation Strategy)

The point being that while ACER is doing well in Europe and expanding globally, they need to back it up with the right level of support and services. If a computer inexplicably fails five times, they should replace it. When computers fail they cause frustration and emotional distress and PC makers should be attuned to that fact. I myself have owned two ACERs. The one got really old when it needed its first service and the second one we bought earlier this year and we are happy with it. But we are lucky and perhaps my friend just got unlucky with getting the wrong one out of the box. Other companies it seems may be more attuned to the bundling of services and customer care than does ACER.

I personally am very impressed with the Dell support here in Taiwan. I have had two HDD crashes so far and both times they have responded quickly and effectively (I lost a lot of data but that is not the support teams' fault). I have other friends who are equally impressed with Lenovo's service both here in Taiwan and in the US. ACER needs to be attuned to this and backup their brand promise and delivery with tangible and meaningful services and offerings that protects the consumer and makes each consumer feel secure with their machine. Preferably 99% of the PCs do not fail, but when one fails, they should act fast and without hesitation or discussion.

Guardian: Acer top in European PC sales, says Gartner

Acer Climbing to No. 2

Yesterday, in PC Demand is Climbing we noted that PC demand had started to increase again due to a a strategic focus on prices from the main PC suppliers. We also noted "There was speculation earlier in the year that ACER would climb above Dell to no. 2." Well, as if on cue, Digitimes yesterday quoted an IDC report saying that Acer was second overall amongst PC vendors in in Q2 2009 with a market share of 18.5%. According to Digitimes:

Acer shipped 6.65 million notebooks in the second quarter of 2009, pushing its share in the global notebook market to 18.5%, compared to 17% in the first quarter, according to data compiled by IDC.

Hewlett-Packard (HP) retained its top ranking position with second-quarter notebook shipments totaling eight million units, but saw its market share decline to 22% for the quarter, down from 22.7% in the previous quarter, IDC said.

Total global notebook shipments reached 36 million units in the second quarter, up 5.6% from 34.1 million units shipped in the first quarter, IDC said.

Dell is certainly facing challenging times. In October last year in Dell's Business Model Struggling to Survive we noted that Dell had started to shift away from their traditional business model towards outsourcing their manufacturing. This started to occur during the big downswing in the economy and one can only imagine that realigning systems and processes with new overall strategic imperatives is very difficult during a normal economic cycle and especially challenging during a large downswing.

As for competing on price, it further highlights how increasingly commoditized PCs are becoming with very little room for product differentiation between competing vendors. And if companies are competing on price, they really do need to have a competitive cost structure throughout the business.

As for Acer, how have they risen so far? Last year in The Rise of Acer we quoted Drew Cullen who said Acer had "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." The article is worth a revisit.

Digitimes: Acer market share rises to 18.5% in 2Q09, says IDC

PC Demand is Climbing

Reuters reports that demand for PCs is starting to increase again but argues that the PC manufacturers have defended their market share (and tried to seize market share) with aggressive pricing strategies. According to Reuters:

A gradual bounce back in consumer demand is helping keep the struggling personal computer market afloat, but plunging prices and a shift toward cheaper machines will keep up the pressure on profits.

Globally, consumers are coming back to PCs, but they are doing so at prices as much as one-fifth lower than even a year ago, analysts say.

Hewlett-Packard Co, Dell Inc and rivals Acer and Lenovo have slugged it out to keep sales up and safeguard or take market share: a battle that of late has been waged by aggressive pricing, analysts say.

Pacific Crest Securities analyst Brent Bracelin noted PC prices have fallen for years, but the decline accelerated with the introduction of no-frills netbooks. He said PC makers have plenty of experience managing costs to maintain margins.

"There's always going to be pressure," he said. "The question is how well do you manage the supply chain and try to reduce costs at the same pace as the price decline or faster."

The global PC market is still limping along, with second-quarter shipments falling 5 percent from a year ago, according to Gartner. But that result was better than expected, and Gartner said the continued growth of low-cost laptops was a driving factor.

A bounce back in the PC sector is good for Taiwan. The bounce back, if real, will certainly seep through the supply chain and increase demand from PC component suppliers. This in the long run will have a positive impact on the Taiwanese economy and hopefully ensure people here will be able to find more jobs and opportunities. The other interesting side of this would be to understand who has lost and gained. There was speculation earlier in the year that ACER would climb above Dell to no. 2. Time will tell I suppose but my guess would be that in these times that demand frugality and attention to cost, the Asian suppliers might be better off.

Consumer PC demand is back, but at what price?

Acer's Rapid Growth

Acer recently became the number one monitor player in India. Channel Times recently tried to understand some of Acer's growing success in India by interviewing S. Rajendran, Chief Marketing Officer, Acer India.

On gaining market share in LCD screens Mr. Rajendran said: "According to IDC, today we stand at the top of the heap as the no. 1 player in the overall LCD monitor market in India with a market share of 15.8% as of Q3 2008. We have grown almost 35% Y on Y from Q3 of 07, when our market share stood at 11.5%. Acer today, dominates the overall LCD monitor market in India with total unit sales of 220, 554 in Q3 2008 alone."

On the response of Indian consumers to Netbooks, Mr. Rajendran said: "The initial response to the offerings has been mind boggling. We are deluged with orders from our retailers and other partners across the country. As of now, how much we sell is more a question of supply rather than demand. We see a continued growth in the netbook front through the next quarter, given the current market scenario and the value add of the product - when comparing cost versus functionality and style."

And Mr. Rajendran also said: "On Notebooks, we continue to maintain the scorching pace we have set in the market world-wide and in India over the past few years. We will continue to be the fastest growing Notebook brand in the top 5 in India too. World-wide Acer is now the no.2 Notebook brand behind the market leader HP. We have also become the 3rd largest PC brand overall in the last one year, which showcases the success we have had across product categories during the last couple of years."

The interview also covers Acer's future channel partner plans and how Acer plans to continue to enhance its position in both the local Indian market and the global market. Its an interesting read. To read the whole interview follow the links below.

ChannelTimes: 'The Future Belongs to Acer' (Part I)
ChannelTimes: 'The Future Belongs to Acer' (Part II)

Slowdown in Electronics Market

PC World reports Gartner is predicting a slowdown in the electronics sector

A weakening global economy will soon cause consumers worldwide to slow spending on electronics products, a Gartner analyst warned on Monday.

"In coming months we expect to see signs of a widespread slowdown in the electronics sector, which would directly impact semiconductor sales," said Richard Gordon, analyst at Gartner, in the market researcher's Semiconductor Monday DQ Report. The chip industry likely won't start to recover until the second half of next year.

The impact of the credit crunch on the U.S., and to some degree European, housing markets, along with high energy prices directly hurting consumers, will lead to slower spending on electronics gear, he said.

Sales of personal computers and mobile phones have held up well so far to this year due largely to demand in emerging markets such as China, India, Russia and South America, which have also boosted semiconductor sales. Chips are the main building blocks of all electronic devices, and more chips go into computers and handsets than any other products.

The Gartner analyst posits that emerging market nations will eventually feel the impact of the worsening global economy.

"As the economic cycle unfolds it seems inconceivable that we will not see a more significant reduction in spending on electronics, even in the most resilient of industry sectors and regional markets," he said.

The most fascinating part of the recent slowdown in this industry is that sales of PCs and consumer electronics devices have continued to roar ahead. The "economic slowdown" is mostly from what we can see here in the United States but with more and more countries becoming increasingly prosperous, their is less dependency on the United States economy.

As the article notes, big pushes into India and China have managed to offset much of the slowdown in the US economy. Russia and Eastern Bloc countries have also been soaking up electronics goods like sponges. South East Asia is another sector that is growing and enabling computer companies to sell to a broader consumer base. The advent of cheaper mobile Internet devices has also helped to float the sales figures and keep the computer industry in the game.

We have long argued on this blog that the economic slowdown in the states will eventually have a negative impact on the electronics sector. We have however been surprised by the buoyancy of the consumer electronics market.

PC World: Gartner Warns of "widespread Slowdown" in Electronics Sector