Conceding defeat in a battle against big American computer makers on their home retailing turf, Acer Inc. said it will halt sales through U.S. retail stores following huge losses.
Acer, Taiwan`s biggest computer maker and one of the world`s 10 largest, said it will reduce staffing at its American unit by as much as 10%, or 50 people, as it focuses its U.S. efforts on sales to business customers and government agencies. It will also seek to boost sales of personal computers through the Internet, capitalizing on a trend among U.S. consumers to buy directly from the manufacturer.
Analysts welcome the move as a bid to stem losses in Acer`s U.S. operations, which have totaled US$200 million since 1996. The pullback won`t have any effect on Acer`s key contract-manufacturing business, which accounted for about half of the company`s global PC shipments of eight million last year. But the decision to abandon sales to U.S. retail outlets is a setback for a company that prides itself on building up Taiwan`s best-known global brand.
Profit Is Key Concern
"We want to continue to promote our brand business, but raising profits is also a No. 1 concern," said spokesman Henry Wang. Losses of about US$50 million last year at the company`s Acer America Corp. unit contributed to a 33% decline in Acer`s net profit to 2.5 billion New Taiwan dollars (US$75.5 million).
Acer`s pullback illustrates how the U.S. PC industry has become dominated by a handful of companies as computers become a commodity, with fading differences among brands. The market share of the five biggest U.S. PC companies totaled 55% as of the end of September, and is likely to continue to rise, analysts said.
"Larger and larger companies will be dominating the U.S. personal-computer business, and the world-wide PC market is going to have fewer and fewer players," said Henry King, research manager at International Data Corp., the U.S.-based industry research company.
U.S. Rivals Shift Target
Cutthroat competition fueled by the popularity of computers that cost less than US$1,000 has radically changed the U.S. retail terrain from just a few years ago. Larger U.S. companies that once yielded the low-cost niche to smaller Asian competitors are now targeting those sales themselves with costly marketing outlays and savvy advertising that makes it difficult for companies such as Acer to compete.
"More and more companies have been targeting the low end of the market and Acer just couldn`t handle the competition" from big U.S. companies on their home turf, said Joseph Liu, an analyst at Asia Research & Consulting Ltd., an affiliate of Hong Kong-based Bank of East Asia.
Acer points out, however, that it isn`t alone in having trouble turning a profit from U.S. retail sales. "Hardly anyone is making money in the U.S. retail channel right now," Mr. Wang said. "We`re doing the sensible thing by withdrawing from it, and trying to focus on where we`ve had success and can make money."
Software Goes It Alone
Separately, an Acer executive said the company plans to spin off part of its software operations as a separate company before the end of April.
The move is the latest step by Acer to build up a software business that rivals its success in PC equipment. Chairman Stan Shih wants 30% of net profit to come from software sales by 2010, but only a tiny fraction of Acer`s profit last year came from distributing and producing software.
Acer is in talks with several financial institutions as well as local PC hardware companies about investing in the new company, said Justin Lin, vice president of Acer`s software business unit. The new firm, tentatively named Acer Softech Inc., would have initial capital of up to US$6 million and 20 to 30 employees, he said.
Spinning off an independent software company would make it easier for Acer to win outside business, attract new executives, and cultivate an environment that differs from the one that has brought success in the hardware business, Mr. Lin said.
"In the hardware business, you need to focus on things like scale and production efficiency," he said. "Software involves more human resources and intellectual property. In order to have a better focus, it`s better to have a separate team."
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