Acer Posts First Loss in a Decade; 2011 Profit ‘Impossible’

Acer Inc. (2353) reported its first loss in almost a decade and said making a full-year profit will be “impossible” as plunging sales prompted the world’s fourth- largest computer maker to write off inventory and cut jobs.

Second-quarter net loss was NT$6.8 billion ($234 million), the Taipei-based company said in a statement today, compared with profit of NT$3.6 billion a year earlier. The average of 17 analysts’ estimates compiled by Bloomberg was for a net loss of NT$2.1 billion.

A fourth straight quarter of declining sales amid competition from Apple Inc.’s iPad prompted Acer to cut jobs and take a loss on products held in storage, as its low-price, high- volume strategy failed to help it maintain share. The company will not make a full-year profit as previously projected because of the slower global economy, Chairman J.T. Wang told investors today.

“While a lot of these are one-timers, and things might recover in the second half, you just don’t see Acer as the same Acer it used to be when it was a solid execution machine gaining market share,” said Steven Tseng, who rates Acer “sell” at Samsung Securities Co. in Hong Kong. “It will be difficult to defend its market share.”

Losing Market Share

Acer fell to fourth place in global market share in the second quarter from second place a year earlier, as Dell Inc. and Lenovo Group Ltd. overtook it and leader Hewlett-Packard Co. (HPQ) maintained its position, according to Gartner Inc.

Second-quarter sales fell 32 percent from a year earlier to NT$102.1 billion. The net loss was the first since the third- quarter of 2001. Operating loss was NT$7.1 billion, compared with the NT$256 million operating profit average of 10 analysts’ estimates compiled by Bloomberg.

Acer announced in June it was cutting 300 jobs and taking a $150 million writedown on what it said were “abnormalities” with inventory stored in freight-forwarders’ warehouses. On July 21, Wang said the company would return to profit this quarter and post net income for the full year.

“At that time I had more confidence, more optimism,” Wang said on a conference call today. “However the Q2 loss is bigger than expected, so today I have to say that for the whole year, trying to be breakeven becomes impossible.”

The company will post a narrower loss in the third quarter and aim for profit in the final three months, he said. Sales and gross margin will improve quarter by quarter in the second half, he said.

Macroeconomic Weakness

A slowing computer market and weak economy prompted the revised assessment, Wang said. He downplayed the popularity of tablet computers, saying that notebooks such as the ones Acer makes are becoming more popular again.

“The fever for tablets is going down and the notebook is regaining the interest of the consumer,” Wang said. New laptops, called Ultrabooks, that are lighter, thinner and turn on instantly, will boost sales from the fourth-quarter, he said.

Slowing personal computer sales and competition from tablets such as the iPad prompted HP to announce plans to spin off its PC business to focus on software and services, following a similar move by International Business Machines Corp. in 2005.

‘Natural Development’

“That’s a natural development in the U.S. Wall Street value system, they don’t like low-margin, low-profit so their investors will force them to do those kinds of things,” Wang said. “We see this as an opportunity, and we have told the channel that we will continually provide our service in the PC” market.

Acer fell 2.9 percent to NT$31.55 at the 1:30 p.m. close in Taipei before the earnings were announced. The shares have fallen 65 percent this year, the fourth worst-performer in Taiwan’s benchmark Taiex index. HP’s stock has lost 42 percent in New York while Dell has gained 8.3 percent.

In April, the company named Jim Wong its new president, replacing Gianfranco Lanci, who left in March following a dispute with the board over future development and company strategy. Mobile unit chief Aymar De Lencquesaing and marketing head Gianpiero Morbello also left the company, Wang said today.

Severance pay for senior executives contributed to the wider-than-expected loss in the second quarter, he said.

“They didn’t want to stay, and we would like to change, so that’s the reason we let them go,” Wang said.

Acer’s $320 million acquisition of iGware Inc., announced last month, marks its most-aggressive move toward cloud- computing as Wang seeks new areas of growth amid a slowing PC market. Cloud computing is Acer’s “most important strategy for the long-term,” he said today.

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

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