Acer Chief Promises No Gateway Layoffs

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Gateway has good awareness, good positioning, but people consider this a company with no future. They have a team of good people who have been hanging on for many years, even with no financial support or resources. So we said there is something valuable inside.

Are you going to phase out the Gateway brand, the way Lenovo is gradually getting rid of the IBM (IBM) brand following its 2005 takeover of the IBM PC division?

We will try to keep multiple brands [in addition to] the Acer brand. It's a critical decision. We are engaged in consulting and going through more in-depth evaluation. We will make a decision by the end of this year. You need more than one brand to arrange the marketing and sales.

And how will keeping the Gateway brand help?

The Gateway brand can sell for $47 more than Acer, for the same spec notebook. That's about 5% more. We made 2% to 3% [net profits] everywhere besides the U.S. in the past two to three years, while in the U.S., it's been 0% to 0.5%. This year we may make 1% net profit, on $3 billion revenue. We have already done all the possible efforts to manage costs and continually grow the business. But when we grow to $3 billion and we can't make 2%, 3% profit, we think that we have to do something. One is to put in a lot of money to build your brand awareness. When we look at the combination of Acer and Gateway, the synergy on the back end, we feel it's a better choice.

Is laying off U.S.-based workers at Gateway one way to achieve those synergies?

People in Gateway started to think how many employees will be laid off. That's not a priority. We want to keep the business. The synergies calculated don't include laying off people. They're mainly from back-end synergies, especially for procurement of key components and possibly synergies from logistics and services. The priority is to create synergy and maintain the business. We don't want to destroy the business or scale down the business. People at Gateway should look at Acer as supporting their strength to make the business turn around.

Gateway helps you in the U.S., where Acer is weak. But Packard Bell's strength is in Europe, where Acer already is in a good position. Why is that company part of the deal?

It reinforces our leader position in Europe.

What about speculation that you were doing it to block Lenovo, which was interested in Packard Bell?

That was part of the consideration, one of several key considerations. With one stone, we killed three or four birds. It's a good return on investment.

And where do things stand with the two deals?

We announced on Aug. 27, and we completed the Gateway merger on Oct. 15. We are going through regulatory approval of the Packard Bell deal. So far, it's under process, and we expect to conclude by the end of this year.

What comes next? Acer is still weak in China, and there are rumors floating around that Acer is one of several outsiders looking to acquire a local Chinese PC company.

Of course, the next [priority] will be China. Management attention is going to be on China. I don't rule out the possibility to have some acquisition. But now we have to focus on streamlining the businesses of Gateway and Packard Bell. We are not seriously engaged in discussion with any company. We are not in a hurry. In the next four to five months, Taiwan is going to have a presidential election, and we have to be careful. We don't know what will happen in the election. Maybe this period of time it is not appropriate for us to do anything. Acer is so visible in Taiwan, we have to handle that very carefully. No matter how much we emphasize that we are a global company, China says you are a Taiwanese company.

Speaking of China, as the head of a company listed in Taiwan, what do you think about the way markets in Shanghai and Hong Kong have been heading upward so sharply? Acer's stock price trades at multiples far lower than counterparts across the Taiwan Strait. Should you be thinking about a shift?

Some banks did mention this kind of alternative to us. But so far it's not on the radar. Recently Citi (C), our adviser in the Gateway case, gave me a report and said, "Hey, J.T., your stock price in Taiwan is at 15-20 p-e ratio, and Lenovo gets 40-45. Your listing is in Taiwan, and your stock price is at a disadvantage."

So, do you have any plans somewhere else?

I have to watch. Has it become a permanent result or a short-term phenomenon?

Einhorn is Asia regional editor in BusinessWeek's Hong Kong bureau .