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Acer to Join Apple, Amazon in Apps, E-Book Markets (Update1)


The logo for Acer Inc.

JT Wang, chairman of Acer Inc.

Jan. 20 (Bloomberg) -- Vincent Chen, an analyst at Yuanta Financial Holding Co., talks with Bloomberg's Susan Li about the outlook for Lenovo Group Ltd. and Acer Inc. Chen also discusses International Business Machines Corp.'s earnings and the outlook for the technology industry.

Jan. 25 (Bloomberg) -- Acer Inc., the world’s second-largest computer vendor, plans to boost profitability to the highest since 2004 by offering an online applications store and its first electronic book reader by mid-year.

The applications store will offer “hundreds, otherwise you can’t call it an apps store,” Jim Wong, president of IT Products division said in a Jan. 22 interview at Acer’s Taipei headquarters. The company also plans to introduce its first netbook, or low-cost notebook computer, running Google Inc.’s Chrome operating system in the third quarter, he said.

Acer will enter markets dominated by Apple Inc. and Amazon.com Inc. in offering downloadable software and e-book readers after it gained computer share by offering low-cost notebooks during the global economic downturn. Moving into new products will help the company boost its net income margin to 3 percent within two years, Wong said.

“If they can find a way to sell applications, then the margins can be very lucrative,” said Vincent Chen, who rates the company “buy” at Yuanta Financial Holding Co. in Taipei. Chen’s recommendations on the stock have returned 134 percent in the past year, equal first among 30 analysts surveyed by Bloomberg.

Net-Income Margin

Acer’s consolidated net-income margin fell to 1.9 percent for the first nine months of 2009, from 3.1 percent for the whole of 2004, after it bought PC suppliers Gateway Inc., EMachines Inc. and Packard Bell BV, and smartphone maker Eten Information Systems Co..

The net-income margin will be above 2.5 percent this year, while operating margin, which measures the percentage of sales less operating costs, will reach 3.5 percent in 2010 and 4 percent within two years, Wong said. Acer’s consolidated operating margin was 2.6 percent for the first nine-months of last year.

Acer shares more than doubled last year, while Dell Inc.’s stock climbed 40 percent on the NASDAQ and bigger rival Hewlett-Packard Co. added 42 percent in New York. The stock added 2.8 percent to close at NT$94 today in Taipei, compared with a 0.7 percent fall in the benchmark Taiex index.

The applications store will be unveiled around the middle of the year with software to support Google’s Android platform, currently used on Acer’s netbooks and smartphones, as well as Microsoft Corp.’s Windows and Windows Mobile systems, while Google Chrome software will be added later, Wong said. Applications will be low-cost or free, he said, declining to specify a price or name developers.

E-Reader

By the end of June, Acer will announce its first electronic book reader featuring a 6-inch monochrome screen, and distributed initially in up to five European countries, Wong said. The device would compete with Amazon’s Kindle, Barnes & Noble Inc.’s Nook and Sony Corp.’s Reader.

“Amazon, Barnes & Noble; they are U.S.-centric. In Western Europe and Asia-Pacific we have publishers to work with, and most of them are content owners,” Wong said. Acer is talking to magazine, newspaper and book publishers to provide content for its device, he said without naming them.

Global shipments of electronic paper, used in e-book readers, will climb 64 percent annually to 1.8 billion units in 2018, according to Austin, Texas-based DisplaySearch.

“They need new products to broaden their sales, but the contribution would be limited,” said Richard Ko, who rates the stock “buy” at Jih Sun Securities Ltd. in Taipei. “Notebook market share will continue to rise and that will be the growth driver.”

Chrome-Based Netbooks

Chrome, an operating system for computers, will be in at least 10 percent of Acer’s netbooks once the PC maker releases its first device in the third quarter, Wong said. So-called dual-boot netbooks, which feature both Windows and Android or Linux, currently account for 5 percent of the devices, he said.

“For Chrome, we’re aggressively pursuing to become one of the first, so there’s a change to the Microsoft-Intel environment,” Wong said. One million of the 12 million to 15 million netbooks Acer sells this year will feature Chrome, he said, declining to say if the device run by that system will feature chips from Intel Corp. or ARM Holdings Plc. Acer sold 10 million netbooks last year, he said.

The addition of a Chrome notebook and tablet computer will help the company overtake Hewlett-Packard as the world’s top PC supplier by 2013, Chairman J.T. Wang said in a separate Jan. 22 interview. Apple’s tablet PC, expected to be released this week, will provide inspiration for Acer’s own product lineup, he said.

Acer Tablet

“We’re developing something, and we will see what happens” after Apple’s tablet release, Wang said. “We’re going to work either in the Windows world or in Google’s defined OS space.”

The purchase of Gateway, EMachines and Packard Bell, which now account for 30 percent of Acer’s overall sales, may be supplemented by acquisitions in China and Japan, two of the markets where the company doesn’t place among the top four PC vendors, Wang said.

“We’d like to proactively pursue any opportunity” and have more than one target, Wang said. “We need to invest more in the China market: We’re kind of late or too small in that market.”

To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net; Bruce Einhorn in Hong Kong at beinhorn1@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net.

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