Posted by: Bruce Einhorn on April 29, 2009
Taiwanese PC maker Acer today reported profits for the first quarter were down 31%, to $60 million. As this Bloomberg article points out, that was below expectations; analysts were expecting $64 million. Acer came out with the news after the end of trading today in Taipei, so you won’t see what investors think about the results till tomorrow. Till now, Acer has been a favorite of investors, with the stock up 39% so far this year. As I wrote in this BusinessWeek article about Acer a few weeks ago, the company’s been a leader in netbooks, the only hot part of the computer business these days, and that’s helped Acer make impressive gains in market share: The company is now a solid No. 3 worldwide and is probably going to pass Dell for the No. 2 spot soon.
Problem is, Acer is relying largely on netbooks to do that. And since the whole point of netbooks is their low cost, it’s not surprising that Acer is taking an earnings hit. When I interviewed Acer CEO Gianfranco Lanci early this month, he denied netbooks were a drain on profits but did concede that they’re not as lucrative as other products. Notebook PCs, for instance, are “a little bit more profitable” than netbooks, he said. It will be interesting to see next month – when HP and Dell announce their numbers – if they are suffering from the netbook effect, too.
When I interviewed Lanci, he also took umbrage at suggestions Acer’s low-cost strategy was ruining the PC industry for everybody by driving down average selling prices, or ASPs. Falling ASPs, Lanci said, are “part of this industry; if it’s not Acer, then it’s somebody else.” Today’s numbers provide further evidence to those who say Acer is making it harder for anyone to make money in PCs. But with Acer accustomed to squeezing out earnings on much tighter margins than its bigger U.S. rivals, I suspect that the low-profit game is one Lanci and other Acer execs believe they can win.