| BUSINESSWEEK ONLINE : APRIL 24, 2000 ISSUE | ||||||||
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| INTERNATIONAL -- ASIAN BUSINESS
Acer's About-Face (int'l edition) Shih's new game plan may be undercut by problems with China For Acer Inc., this was supposed to be the year for a breakthrough in China. The Taiwanese computer giant last fall opened a $50 million factory in Guangdong province that churns out 200,000 desktop PCs a month. Acer plans to build two more factories by midyear, and six more are in the planning stages. After years of frustration trying to woo mainland officials infatuated with domestic computer makers, CEO Simon Lin says Acer finally is ready for battle in China's vast market. ''The war hasn't even started yet,'' says Lin. Unfortunately for Acer, the war of words between the governments of China and Taiwan is again in full force. And Taiwanese investors are in danger of getting caught in the crossfire. Furious over the March election victory of Chen Shui-bian, leader of the pro-independence Democratic Progressive Party, Beijing leaders for the first time are publicly lashing out at private industrialists who actively support Taiwan's next President and suggesting they may not be able to do business on the mainland. Acer Chairman Stan Shih, an adviser to Chen, could be high on the list. RETREAT IN AMERICA. Shih swiftly issued a statement that he isn't involved in partisan politics and that his role on Chen's advisory board is ''on behalf of the country.'' He plans to go ahead with a trip to Beijing in late April to speak at a government-organized conference. But to tea-leaves readers of Beijing politics, Acer may face trouble. It's the kind of headache Acer really can't afford right now. After more than a decade of effort, the computer maker is ready to call it quits in the fiercely competitive U.S. consumer-PC market. While sales are improving in Southeast Asia, an Acer stronghold, such rivals as Dell, Samsung, and Beijing's Legend are showing stronger growth in the region. Strategies mapped out in the mid-1990s, such as a push into consumer electronics, have borne little fruit. Meanwhile, Acer is still laboring to gain a foothold in China, which accounted for just $100 million of the group's $8.5 billion in sales last year. If anyone in Taiwan knows the time has come for a major reversal in strategy, it is Stan Shih. Time and again since starting Acer in 1976, Shih, 55, has responded to setbacks in the ever-shifting computer industry by redesigning the company. Thus, he is unveiling yet another corporate makeover. Shih also is feeling heat from stockholders. In the three days after Beijing's warning, shares in Acer Inc., the group flagship, fell 5%, to $2.66. So far this year, they have slid 16%--compared with a 17% rise for the Taiwan market and strong performance by major computer companies in the U.S. and Asia. Acer Inc.'s 193% jump in profits for the fiscal year ended Mar. 31, to $243 million, was overshadowed by a 24% drop in sales in 1999, caused largely by IBM's decision to stop U.S. sales of its Aptiva PCs, which Acer makes on contract. And most of the profit gains came from asset sales, including stakes in successful subsidiaries such as chip-design house Acer Laboratories Inc. and a chipmaking venture with Taiwan Semiconductor Manufacturing Co. Shih's plan is to reposition Acer as a diversified holding company rather than pursue its old goal of becoming one of the world's biggest computer companies. Besides pushing hard on new products such as inexpensive devices consumers can use to access the Internet, Shih is diversifying into telecom, e-commerce, and entertainment. On Apr. 12, Acer announced it had joined Taiwan's China Development Bank in buying a 30% stake in Hong Kong movie distributor Golden Harvest Entertainment (Holdings). ''Acer is a company that's trying to get into everything at the same time,'' says Asia technology analyst Janardan Menon of Dresdner Kleinwort Benson. All of this--along with the U.S. pull-back to focus more heavily on China and other Asian markets--will take lots of money. Over the winter, Acer raised $300 million in a bond offering. Shih also plans to keep selling stakes in its many subsidiaries. ''How long can I do that?'' he asks rhetorically. ''Forever.'' He claims Acer has some $3.3 billion in unrealized gains from subsidiaries, though he won't say what's on the block. For Shih, one of the hardest decisions was abandoning the U.S. consumer sector. In the mid-1990s, it seemed Acer had finally broken through with its sleek, hugely popular Aspire home PC. But Acer then got outmaneuvered by such rivals as Dell and Gateway with far stronger marketing, distribution, and customer service. And while Acer slugged it out in low-margin sectors, it failed to gain in the lucrative corporate market. After losing $45 million in the U.S. last year, Acer began its retreat from the consumer market. ''We faced the facts,'' Shih says simply. Instead, Acer aims to target small American businesses, where it hopes to reach $500 million in sales this year. Analysts don't rule Acer out: Many distributors regard it as a reliable supplier of equipment for buyers who prefer value over brand names. But ''it's a tough spot,'' says Stephen Baker of Reston (Va.) market-research firm PC Data Inc. ''All the major guys have been talking about how they're going to target the small and midsize business sector.'' Acer plans to remain a big player in consumer PCs in Asia, where it still commands a solid share and brand awareness in such markets as Taiwan and Malaysia. Acer hopes to expand its reach through the Web. In Taiwan, it runs one of the most popular Net-service providers, Acer Internet Services Inc., with more than 600,000 subscribers. To enter the wireless Web, Acer has a stake in a top local cellular operator. It also runs hot sites that allow users to send greeting cards, order tickets, and play games ranging from mah-jongg to Chinese chess. Acer plans to pump about $60 million of its own money into its Internet businesses and raise an additional $140 million from outside investors. Its investments already include a Chinese-language portal called yam.com and a firm developing software for Internet banking. Other ventures are working on everything from electronic cash cards to online lotteries for Taiwan. It will still take a while, however, before Acer's dot-com ventures contribute much to the bottom line. Acer's online revenue totaled just $2.4 million in 1999. That should double this year. Still, ''it's not big,'' concedes George Huang, head of Acer's online division. One reason Acer is pushing ahead anyway with the Net is to boost demand for its hardware. Executives have big hopes for Internet Appliances that access the Net but lack all the features of PCs. Acer launched an early IA in 1996, but the machine flopped. ''It was too complicated and unreliable,'' says Shih. Some analysts still question Acer's chances in such appliances. ''Acer will be competing with the big consumer companies like Sony and Microsoft,'' notes Kevin Chang of SG Cowen Securities Corp. in Taipei. That makes China all the more important. ''In five years, China will be the second-largest market in the world for PCs,'' explains Lin. ''And for IAs, maybe even No. 1.'' Now No. 9 in market share in China, Acer aims to be among the top five in both PCs and IAs by 2002. To achieve that goal, Shih has a lot of diplomacy to do. By Bruce Einhorn, with Stuart Young, in Taipei and with David Rocks in New York _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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