Acer Is Still Searching For The Password To The U.S.

Stan Shih likes to talk about his go strategy for conquest in business. Rather than lunge for quick victory, a master player of the Oriental board game methodically surrounds his opponent before moving in for the kill. Since 1984, Shih has been using this patient tactic to move Acer Inc. into the U.S. computer market.

The first step was to build up Acer's own research and development capability. Then he expanded the product line by buying two Silicon Valley computer makers. He also invested heavily to recruit U.S. distributors and make the Acer name familiar to consumers. By this year, Acer was to have been ready for its big assault. It would storm the U.S. market with a $500 PC and an ad blitz. Shih's goal: To make the Taiwan-based Acer one of the world's top five computer makers by 1995.

The go strategy hasn't gone as Shih had hoped. Last year, heavy losses in Acer America Corp. led to the parent company's first loss in 15 years--$22 million on sales of $472 million. Leonard Liu, a 20-year IBM veteran and Acer's president for American operations, quit on Apr. 22, and Shih assumed his responsibilities.

Shih's first mistake was investing in the wrong Silicon Valley companies. In 1987, he paid $6 million for Counterpoint, a startup that built a powerful minicomputer using multiple microprocessors. But Counterpoint was no match for the likes of Digital Equipment Corp. and failed two years later. In 1990, Shih doled out $94 million for Altos Computer Systems Inc. A microcomputer pioneer, Altos had thousands of customers and an extensive network of distributors. But it, too, was selling minicomputer-like setups, and sales were evaporating.

`THE TERMINATOR.' But mismanagement, Acer executives say, caused the real damage. On top of poor inventory control and an unappealing product mix, slow shipments of finished PCs from Taiwan caused bottlenecks at the PC assembly plant in San Jose, Calif.

Last year, the company began slashing Acer America staff by 10%, to about 600, and streamlining supply lines. It now plans to send parts, rather than finished PCs, to San Jose. That will make it easier to change configurations and cut prices quickly.

The $500 PC, which Acer nicknamed "the Terminator," has been dropped. Acer couldn't get the price down that low, says Acer PC System Business President Johnny Shih--no relation to the founder. But last August, the company launched the low-cost Acros line for mass-merchandise chains and computer superstores. The cheapest model, based on Intel Corp.'s 80386SX chip, sells for about $800, and Acer expects Acros sales to hit $100 million the first year. "The revenues are huge," says Peter A. Janssen, Acer America's marketing vice-president. "The problem is profitability."

ROUGH TERRAIN. Shih says the troubles in the U.S. weren't unexpected, given the recession and price wars. Acer, he notes, made money everywhere else. "We can compete anywhere in terms of product and price," he says. But the U.S. "is totally unfamiliar." He concedes, too, that he underestimated the investment needed to penetrate the U.S. market.

But he's not giving up. Acer America is boosting its service staff and has started a telemarketing operation. Acer computers were recently picked for the ComputerLand Corp. chain, and Shih expects a 40% rise in U.S. sales, to $280 million--and breakeven--in 1992. "We're medal winners in South America, the Middle East, and Southeast Asia," he says. "But we haven't won the U.S. Open yet. We're not used to that game." So far, at least, the patient go strategy hasn't worked.

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