Acer makes no money off $799 ultrabooks, plans seppuku plunge to $499 to achieve iPad price parity

Acer, Inc. (TPE:2353) has plunged in global sales market share and seen major leadership shakeup.  The company's new CEO JT Wang blamed the decline on his company's poor products, which he described as "cheap" pieces of electronics.  He vowed to make his company "more Apple-like", a tribute to Apple, Inc. (AAPL), the world's most valuable electronics company in terms of market capitalization.

Acer responded to this downturn by backing Intel Corp.'s (INTCultrabook push, unveiling designs like the S3 and the S5.  These ultrabooks have been very competitively priced -- the S3 starts at $799 USD/ €699.  But there's one minor hiccup -- according to Christoph Pohlmann, an Acer laptop team leader who spoke with The Verge, Acer makes no profit currently off its ultrabooks.

According to the interview, Acer does overall see a profit, as higher-spec’d models are profitable, while the entry-level design serves as a publicity tool.  In other words, Acer's current approach makes sense, though is slightly risky in relying on a certain amount of "break even" product.

But Mr. Pohlmann voiced strong doubts about Acer Global President Jianren Weng 2012 CeBIT promise (quoted by UDN), in which he said that Acer would be dropping the price of its ultrabooks to $499 USD by 2013 to match the price of Apple's iPad.

Acer v. iPad
Acer wants to sell its entry level ultrabooks at the same price as the iPad, taking a deep loss per unit. [Image Source: Acer (left); Apple (right)]

He said that Acer would have a near impossible time getting its ultrabooks bill-of-materials to $599/€499 in that timeframe, let alone $499/€399.  

In other words, Acer may be committing financial seppuku if Acer President Weng carries through with his deep discounting plan, in that Acer would be losing as much as $300 USD per laptop sold.  Investors should be very concerned about this development as it brings a huge risk of backfiring catastrophically.

There's a small chance the gambit could pay off, as it would surely score Acer a lot of customers, and perhaps drive some sales of its profitable specs.  However, the plan is also likely making other laptop makers nervous that customers are going to demand that they follow Acer in its "race to the bottom".

Intel disagrees with this strategy, seeing ultrabook laptops as value items.  Intel Europe's marketing manager Dave Rogers told The Verge, "How little it will cost is not really the question."

He points to efforts like Intel's touch screen hybrid laptop/tablet prototype that was shown at CES 2012 running Microsoft Corp.'s (MSFT) upcoming Metro UI-driven Windows 8.  In other words, Intel and Acer are going in opposite directions when it comes to ultrabooks -- Intel wants more expensive models that give value by adding new technologies, Acer is trying to offer cheaper models that stick to traditional designs.

The ideological difference could push Acer to Advanced Micro Devices, Inc. (AMD), whose ultrathin chip making philosophy is aimed at lower prices.  AMD hopes to have ultrathins at sub-$500 prices on the market this year.  It could also lead Acer to experiment with ARM chipmakers' designs.

Sources: The Verge [1], [2], UDN

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