Acer Sets Sights on Apple, HTC After HP Chase Stumbles

(Corrects to remove erroneous phrase about new president’s characteristics in second paragraph.)

Gianfranco Lanci tried to make Acer Inc. (2353) the world’s largest laptop maker by outselling Hewlett- Packard Co. The board says he should have set his sights on Apple Inc. (AAPL) and HTC Corp. (2498) instead.

The rift led to Lanci quitting yesterday as chief executive officer of the Taiwanese computer maker, Chief Financial Officer Tu Che-min said in an interview today. The company plans to name a new president this month and Acer is seeking to be a leading player in smartphones and tablets, he said.

As Acer reels from its worst weekly stock plunge in almost a decade, the board faces the challenge of finding a leader able to reinvent the company into a developer of products that can challenge Apple and HTC from being a volume-driven maker of commoditized computers. The shift in strategy means spending on research and development will increase, Tu said.

“For Acer, and other PC makers in general, the way to create value is to innovate and find new markets and opportunities, and that’s a big challenge,” said Simon Ye, an analyst at research company Gartner Inc. in Shanghai. “Acer’s problem is that it is commonly perceived as a brand that competes on price, and that doesn’t help profitability.”

The shares fell 4.8 percent to close at NT$57.10 in Taipei trading, capping a 22 percent rout since the company on March 25 slashed its first-quarter sales forecast. Brokerages from CLSA Ltd. to Goldman Sachs Group Inc. (GS) cut their ratings on the stock to sell in the past week.

Tablets

As conventional laptops lose their appeal to new-generation devices such as handheld computers with touch screens, companies such as Acer may need to focus more on developing tablet computers to boost profits, analysts said.

“There is a concern at Acer about profit margins,” said Dean Lim, who rates Acer shares “reduce” at Mirae Asset Securities in Hong Kong. “If they can increase sales of tablets, that will help improve the profit margins.”

Chairman J.T. Wang will temporarily take over the chief executive officer’s role from Lanci, the company said. Walter Deppeler -- president of the Europe, Middle East and Africa operations -- and procurement head Jim Wong are frontrunners to succeed Lanci, according to Macquarie Group Ltd. Acer’s Tu declined to identify any candidates.

The Taiwanese PC maker is realigning its business to focus on profitability, instead of sales volumes, spokesman Henry Wang said today. Lanci quit after a slump in Acer’s stock this year, the most in the MSCI AC Asia Pacific excluding Japan Information Technology Index, as a focus on low-cost laptops eroded profit margins.

Profit Margin

Apple, maker of the iPad tablet, iPhone and iMac computer had a 21.5 percent profit margin in its last fiscal year, according to data compiled by Bloomberg. Acer had 2.3 percent.

“There is good consensus among the board members that the tablet is the way to go,” CFO Tu said by phone today. Previously, the company’s goal was to boost shipments of notebook computers to increase market share, he said.

The board and Lanci “placed different levels of importance on scale, growth, customer value creation, brand position enhancement, and on resource allocation and methods of implementation,” Acer said in a statement yesterday. Calls to Lanci’s Taipei office yesterday weren’t answered and e-mails to his Acer account bounced back.

Rising Costs

Acer in January reported fourth-quarter profit that missed analysts’ estimates after revenue fell 11 percent.

The company last month started sales of its Iconia tablet, more than a year after the unveiling of the Apple iPad.

“We think Acer inevitably will see rising research and development expenses,” Nomura Holdings Inc. analyst Eve Jung wrote in a report today. “Acer plans to focus more on product innovation to face growing competition from Apple’s iPad 2.”

Acer overtook Dell Inc. (DELL) as the world’s second-largest maker of PCs in 2009 as the company boosted overseas sales through the acquisitions of Gateway and Packard Bell.

Lanci, who had been president of the company since 2005, also oversaw Acer as it capitalized on the boom in demand for sub-$500 laptops, known as netbooks, after the worst global financial crisis since World War II prompted consumers to buy cheaper computers. Apple’s iPad starts at $499 in the U.S.

The focus on netbooks cost Acer last year as Apple’ iPad gave consumers an alternative product to a low-end laptop. Acer’s market share of the PC market fell to 12.7 percent in the fourth quarter, down from 13.3 percent a year earlier, according to estimates by research firm Gartner Inc.

To contact the reporters on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net; Janet Ong at jong3@bloomberg.net

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

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