Acer Inc., the Taiwanese maker of popular netbooks and other computing products, recently surpassed Dell Inc. as the world's #2 maker of PCs. While Dell has seen continuing weakness in its consumer product sales, Acer has become the world's fastest-growing PC maker in part due to success in the PC market in which Dell is most challenged.
Acer sells PC products under four brand names: Acer, Gateway, Packard Bell and eMachines. The Gateway and eMachines brands up were picked-up when Acer purchased what remained of Gateway in 2007 and the company acquired Packard Bell in early 2008. Through these acquisitions Acer picked-up the remnants of failing PC makers and took possession of brand names with perceived value in various global markets.
Acer operates on razor-thin margins. Gross margins on products sold are around 10%, less than 1/3 the margin Apple commands on its products. To maintain success the company must grow unit volume. Acer may soon become the world's leader in laptop sales and eventually challenge HP for the global top spot in total PC shipments. At low margins unit shipments become all the more important.
How does Acer's success benefit Apple?
Acer has become the successor to three defunct computer makers: Gateway, eMachines and Packard Bell. These brands have become nameplates for Acer's inexpensive PC products. The different nameplates are used in the regions in which the respective brands maintain the greatest strength. By creating one central enterprise (including Acer's own branded product) the company continues to push PC prices lower and is essentially clearing the field of competitors in the PC market.
In 2008 Acer recorded revenue of $16.65 billion and net income of $358 million. The company is targeting $30 billion in annual revenue as the company's goal. To achieve this ambitious goal the company is moving into smartphones in a more substantial way and is moving away from Windows Mobile in favor of Android-based phones. In the PC market the company will continue to drive down costs to protect its 10% margin while gaining as much unit volume as possible.
Acer's aggressive growth plans will make it challenging at best for Dell to remain in the consumer market. The company's successful focus on netbooks is also redefining the way people choose and use laptop PCs and is unwittingly eroding the market for more expensive portable Windows PCs.
Acer has become Apple's unintended ally in furthering Apple's effort to undermine the PC-centric model. This is not good news for Microsoft but it is good news for Apple. Acer is clearing the way for the much-rumored Apple tablet which is expected to arrive in a small form factor with constant connectivity. It will also feature access to over 100,000 low-cost/no-cost iPhone OS apps.
Acer will continue to devour competitors in the PC market with low-cost, low-margin netbooks and laptops leaving a gaping hole for an Apple-designed tablet with unique functionality to fill the middle ground between the limits of a netbook and Apple's higher priced laptop line.