Acer Group (TPE:2353) is the largest notebook manufacturer in the world by unit sales and the second largest PC manufacturer after Hewlett-Packard (HPQ). The company is based in Taiwan and produces the Acer, Gateway, eMachines, and Packard Bell brands.  The company has historically succeeded by competing on low-cost value computers, but with the acquisition of Gateway, eMachines, and Packard Bell, Acer has begun to market these brands toward higher-end segments.
Acer's primary products are its laptop computers. With the 2008 economic downturn, consumers have begun purchasing more netbooks--popular low-cost scaled down versions of notebooks. Netbooks are also popular in emerging markets, where the company has the highest sales growth rates, as the market for PCs in developed countries has mostly matured.  Notebooks and netbooks together constitute 69% of Acer's net sales.
According to the company's founder, Acer will expand into televisions and e-books by 2014. Acer plans to introduce four new smart phone models later in 2010 to help boost profits as HP enters the smartphone market after acquiring Palm (PALM).
Since its inception, Acer has established a cost leadership strategy, with products generally priced below $1,200. Profit has been historically driven by volume sales rather than driving up margins. Rather than repositioning its own brand into the high-end market, the company has acquired other PC brands. With the acquisition of Gateway, Packard Bell, and eMachines, the company is targeting the medium to high-end market segments, keeping the Acer brand in the low-end range.
Another entry Acer is trying to make in the high-end market is by introducing its Gemstone Blue home entertainment system product line of notebooks. In 2008, Acer introduced these notebooks, which include cutting-edge features such as Dolby Surround Sound, Blu-ray player, and a 16:9 HD Display.
First Quarter 2010 Results
Acer reported revenue for the quarter of NT$162 billion (New Taiwan Dollar (TWD)), an increase of 36% from the first quarter of 2009. GAAP operating income increased 71% to NT$4.385 billion. Acer's gross profit increased 32% to NT$15.714 billion. The company reported EPS of $1.25, an increase of 60%.
Although Acer's corporate structure is organized by geography, its sales are best interpreted by product line.
Acer's focus on notebooks will be advantageous to growth in the long term. From 2006 to 2011, the company's consumer notebook shipments are expected to grow 19.9% annually and corporate notebook shipments 17.7%. In contrast, PC sales and prices are already declining. As a percentage of total sales, notebook sales rose to 69% in 2010 Q1 from 63% two years ago..
In the last two years netbook sales skyrocketed, driven by rising demand as consumers trade down from more expensive notebooks or desktops. In the third quarter of 2008, the company established a 38% share of the netbook market, making it the leading manufacturer of netbooks by unit sales. In the first quarter of 2009, netbooks grew to account for 20% of overall notebook sales worldwide.
Acer has demonstrated strong emerging market growth, with sales in Asia Pacific and China growing 25% and 68% year-over-year, respectively, in 2008Q1.  The market for PCs has matured in developed nations, leaving emerging markets as viable growth opportunities. In 2004, US and Western Europe accounted for 32% and 23% of the overall PC market, respectively. By 2010, these proportions are expected to decline to 23% and 21%, according to Interactive Data (IDC), suggesting the increasing importance of Asia Pacific and other emerging markets. Furthermore, with government and telecom operators building broadband infrastructure at a faster rate in developing countries, complementary demand for PCs is also expected to rise.  For example, Dell (DELL) and Vodafone Group (VOD) have partnered to provide a free netbook with a two-year $70 per month 3G wireless contract. 
U.S. Dollar (USD) accounts constitute 90% of Acer's expenses compared to 20-25% of its revenue, so the company benefits from a depreciating USD. Since mid-2008, the Taiwanese dollar (TWD) has appreciated markedly against the US dollar. The Euro (EUR) accounts for 40% of Acer's annual revenue, so an appreciating euro would benefit the company's bottom line.
Acer is the second-largest vendor of PCs (laptops and desktops) worldwide with a 14.1% market share, after and Hewlett-Packard. Acer's other significant competitors in the PC market include Dell (DELL), Lenovo Group (LNVGY), Toshiba, and Apple. The desktop market is highly fragmented, with the top five companies accounting for only 55.2% of the global desktop market share. This results from the large number of small, low-cost manufacturers, which hold around 44.8% of the desktop market.
|Company||2Q08 Shipments (thousands of units)||2Q07 Shipments (thousands of units)||2008-2007 Growth (%)|
|Lenovo Group (LNVGY)||5,580||4,888||14.2|
In notebooks, the top nine companies hold about 85.5% of the global market, and the segment has shown strong growth driven by sales in developed countries and the proliferation of wireless access.
|Company||1Q07 (millions of units) ||1Q08 (millions of units) ||Y/Y % Growth |
|Lenovo Group (LNVGY)||1.413||2.321||58%|