Acer: Up From Clones And Then Some

With less than 1% of the PC market, sluggish sales, inventory problems, and $90 million in losses in the last three years, it seemed Acer Group would never thrive in the U.S. But rather than fade from the scene, Acer actually is digging in and, thanks to a sharp turnaround in the U.S., Taiwan's largest maker of computers and semiconductors expects net profits to triple, to $30 million, this year, on sales of $1.4 billion. That's still a modest profit but a nice change from the $25 million loss of two years ago.

The rebound came from a streamlined assembly process and brisk sales of inexpensive PCs through such chains as Wal-Mart Stores Inc. and CompUSA Inc. It also stems from a rush of orders from big-name PC companies that buy from Acer rather than build their own.

What's more, Acer is starting to see a payoff from its investments in engineering. In May, it came out with a souped-up PC using a RISC (reduced instruction-set computing) chip and running Microsoft Corp.'s new Windows NT operating system. Acer now offers "an enticing amount of innovation without jacking up the price," says Leslie Fiering, a consultant with Gartner Group Inc.

Cofounder Stan Shih is dusting off his dream of transforming the 17-year-old company into one of the world's five top computer companies. That dream seemed to be fading in the past five years as Shih blew $100 million on two ill-fated acquisitions in the U.S.

Now, rather than focus only on Acer's brand-name products in the U.S., where it's overwhelmed by the industry giants, Shih says he's happy to see up to 40% of his output sold under other brands. Earlier this year, Apple Computer Inc. contracted some of the production of its popular PowerBook 145 notebooks to Acer, a deal that W.I. Carr (Taiwan) Ltd. analyst Dickson Ho estimates to be worth $100 million this year.

A SNAP. With capacity for building everything from inexpensive color monitors to complete PCs and complex custom chips, Acer is well prepared when the computer makers come shopping in Taiwan. Acer is among the world's top 10 producers of color monitors and keyboards, and Shih hopes to move his wafer-fabrication venture with Texas Instruments Inc., now devoted to memory chips, into microprocessors.

Shih is also streamlining manufacturing around the world. Acer America Corp. used to get finished PCs from Taiwan by boat. By the time they landed, the machines were overpriced, obsolete, or both. In 1992, the subsidiary began assembling PCs in San Jose, Calif., from motherboards airlifted from Taipei. Since then, Acer America has boosted output 60%, to 16,000 units a month, while cutting its work force 29%, to 500 people.

Now, Shih is converting all 30 assembly sites to modular assembly--creating PCs from major components that snap together. Ultimately, Shih says, the system will be so easy that dealers will be able to assemble custom PCs with parts from regional distribution centers, much as McDonald's Corp. sells beef patties to franchisees.

Not everyone is sold on Shih's vision. Says one Silicon Valley consultant: "Acer is still making a plethora of 'me-too' products" such as printers and fax machines. These efforts could divert energy from pushing hit products. And with thin margins in PC hardware and big cash drains such as Acer's unprofitable memory-chip plant, Gartner's Fiering says, "the concern is their financial stability."

Shih now figures his route to stability may be to "become more and more important as a supplier for everyone else." That may not make Acer a household name in the U.S. But it could someday make Acer the big-time player Shih always wanted it to be.