Former CEO Gianfranco Lanci has capitalized on vision at Lenovo, while Acer has fallen to record losses

Investors appeared to have little faith that chaos is not continuing to reign at Taiwan's Acer, Inc. (TPE:2353), the world's fourth largest computer maker.

I. The Rise

The tale of Acer is one of an international pioneer, which first made a name for itself locally, and continued to glow globally until it began to experience succession issues.  But the company nearly had an answer.  It had a clear path to becoming a mobile leader and to potentially become the top global PC seller.

But nationalism and tradition derailed that bold vision in 2011 and Acer has been paying the price ever since, a fact that it has finally owned up to.

Acer -- originally incorporated under the name "MultiTech" -- was founded in 1976s.  Founder Stanley "Stan" Shih and his wife literally started the company out of their apartment with only $25,000 USD in capital (about $100K USD in today's money). Getting its start producing Apple II clones in the 1980s and 1990s, Acer rose up to become the first prominent Taiwanese computer brand.  Acer would come to convince American buyers that Taiwanese brands were a viable options in the electronics market.

Stan Shih
Stan Shih built Acer into Taiwan's first tech star. [Image Source: Want China Times]

Stan Shih also played a crucial role in mentoring four young Taiwanese engineers who would go on to start ASUSTek Computer Inc. (TPE:2357), which revolutionized the motherboard/chipset industry and would go on to become a fierce competitor to Acer in the PC market, as well.

Some would say Mr. Shih's departure in 2005 signaled the beginning of trouble for Acer.  Others would argue this veteran Taiwanese firm -- like many American computers makes including Dell Inc. and Hewlett-Packard Comp. (HPQ) -- was too stubborn and old-fashioned to adjust to the corporate realities of the mobile era.

Whatever the case, Acer's biggest problem has arguably been leadership.  With the departure of Mr. Shih, J.T. Wang -- a sales oriented engineer -- took over [PDF] and carried the company through a period of modest prosperity, but disappointing growth. 

II. Acer Rejects Visionary Path

Acer cashed in on the netbook craze and increasing sales of mass market notebook computers, but largely missed the trend toward handheld computers (smartphones, tablets) and faced declining profitibility.  Acer made a bold move in 2007 buying Gateway in the U.S. and Packard Bell in Europe.  The move greatly expanded Acer's sales revenue, but shrunk its cash pile and failed to significantly improve profits.
Acer Aspire One
Acer cashed in on the netbook boom. [Image Source: Acer]

Gianfranco Lanci, an Italian Acer employee, became co-CEO with J.T. Wang.  Mr. Lanci headed the hardware business and is widely credited as driving Acer during this period to become the number two global PC seller in terms of volume shipments.  In 2008 Acer, searching for direction, made him CEO of the entire company, pushing J.T. Wang back into the role of President.

Under Mr. Lanci Acer grew revenue and profit, and approached a bold transformation.  In 2010 with the explosive growth of smartphones and with the Apple, Inc. (AAPL) iPad showing surprising sales, Mr. Lanci plotted a plan to dramatically transform Acer.  He wanted to grow the engineering staff from 300 or 400 engineers to around 1,000 full time engineers.  The larger staff would both develop new mobile products (like tablets) and focus on tight software-hardware integration (à la Apple or Google Inc. (GOOG)).

The part of the plan that rubbed Acer's elite the wrong way was the fact that Mr. Lanci wanted to hire many of these engineers in the U.S. and Europe.  Acer's top brass was fine with selling to the Americans and Europeans, but they weren't too keen in hiring them over Taiwanese candidates -- even if the foreigners were more qualified in terms of mobile expertise.

Acer Gianfranco
Acer and Gianfranco Lanci's split was contentious and heated.  Acer accused him of failing the company, he accused Acer of picking nationalism over global success and mobility. [Image Source: AFP]

The disagreement led to Mr. Lanci's ouster in early 2011.  In an interview with Ina Fried Mr. Lanci commented:

The real major issue was [building talent for a mobile effort] in Taiwan, was not possible.  We needed to go outside Taiwan, be it China or India or even the U.S. or Europe, wherever you can find software resources, software know-how.  I said [to the owners], 'Look, it is not de-Taiwanization.' It is just globalization. If we want to be in the top three (PC makers) in the next three to five years, we need to be a global company and we need to leverage resources wherever they are.

Damningly, he told Acer's brass:

I see Samsung is probably doing the right thing [in going mobile].  Last year we made more than $600 million in operating income.  Let’s see what they are able to do.  People after a few years will decide who was wrong.

They can say hindsight is 20/20, but Mr. Lanci had the vision beforehand, which might have propelled Acer to greater things, had its owners listened, but they did not.

III. Lenovo Embraces Vision Acer Was to Fearful to Adopt

Looking back on Acer's last two years, nearly any investor would today argue that Mr. Lanci was right.  The former Acer exec landed on his feet, joining Hong Kong-based Lenovo Group, Ltd. (HKG: 0992) and basicaly implementing the strategy that Acer refused to allow him to implement.  To add insult to injury, Acer tried to sue him to prevent him from joining Lenovo for as long as it could.

After his vision was rejected by Acer, Mr. Lanci set up shop heading Lenovo's sales outside the Americas. [Image Source:]

The results were impressive.  He drove the Chinese OEM to seize the top spot in global PC sales and is currently championing the rollout of its smartphone line.  Much of this success was driven by precisely what Acer so feared -- globalization.  Lenovo today builds much of its computers for the U.S. market locally, negating what advantage Dell and HP might otherwise have.

By the end of 2013, with the help of Mr. Lanci and other visionaries, Lenovo was so profitable that its CEO graciously shared his bonus with employees as a reward. 

Gianfranco Lanci
Mr. Lanci drove Lenovo to become the world's third largest smartphone maker.
[Image Source: ComputerWoche]


And Lenovo had plenty more to be celebrating, passing South Korea's LG Electronics (KRX:066750) (KRX:066755) to become the third largest smartphone seller globally, behind only Samsung Electronics Comp., Ltd. (KRX:005935) (KRX:005930) and Apple.  These smartphone sales have been cornered on the so-called EMEA (Europe, Middle East, and Asian) market -- the portion where Mr. Lanci has reigned as sales chief.

In lieu of that success Mr. Lanci looks poised for a promotion inside Lenovo and is a top contender to one day become its CEO.

IV. For Acer, the Ruinous Road

As Mr. Lanci's fortunes have flourished, Acer's have withered.

After dropping the Italian executive, Acer largely dropped his mobile plans as well, instead opting for a heavy push in the ultrabook space in 2011.  J.T. Wang, who stepped back into the CEO role for a second time, felt ultrabooks would be a terrific high-margin business for Acer.

Acer ultrabook
Acer bet big on ultrabooks and suffered when they fell short in sales. [Image Source: Pocket Lint]

He didn't do this plan any favors by attacking his own brand in a misguided attempt to characterize his ultrabooks as more refined than past Acer product.  In interviews he characterized Acer's mainstream offerings "cheap" and "unprofitable".  He gushed over rival Apple's products and even issued bold threats to partner Microsoft Corp. (MSFT) over the decision to launch the Surface tablet.

He pushed out a bit of tablet product in the form of the Android OS Iconia tablets, but the devices were largely viewed as uninspired.  Much as Mr. Lanci warned, without the tight integration between software, firmware, and hardware that Samsung, Apple, and other top mobile OEMs committed to, the devices performed poorly and had little in the way of compelling sales points, forcing Acer's pricing into a continuous retreat.
Acer Iconia
Acer's Iconia line was largely ignored for lack of strong selling points.

Things have gone quite poorly for Acer.  Its 2012 ultrabook push flopped, as consumers greeted the pricey high end laptops with skepticism, choosing to spend their dollars on mobile instead.  Acer saw poor earnings for much of the year, but remained marginally profitable.  And this year, even as ultrabook sales began to pick up, the poor reception of Windows 8 damaged Acer's overall PC lineup sales.

Meanwhile in the tablet space Acer moved little product, and what little it did sell it had to price so low that it made little if anything off of.

Acer earnings
Acer earnings have trended steadily downwards in 2011-2013.

In Q3 2013 Acer saw a ray of hope in tablet sales, tripling its sales volume of a year before to 1.2 million units, good enough for fifth place (thanks in part to stronger adoption of Windows 8.1 tablets) (behind Mr. Lanci's Lenovo EMEA unit, which sold 2.3 million units for fourth).  But the results were otherwise dismal; Acer lost a record T$13.12B ($446M USD) on a revenue of T$92.1T USD ($3.13B USD), nearly 13 times the analyst predicted loss of T$109M ($3.7M USD).

Acer J.T. Wang
J.T. Wang resigned after driving Acer to the edge of ruin in 2012-13. [Image Source: Komplett]

Following that failure, J.T. Wang, 58, resigned and Acer President J.T. Wong was appointed his successor.  Rather than beef up Acer's global engineering staff to make for better mobile products the new chief instead bought into the same line of logic as his predecessors, ruling that instead the answer was to carry on as usual, while tightening the belt a bit.  He committed to "drastic" layoffs of 7 percent of Acer's global workforce.

But it quickly became apparent that these recycled solutions were not helping Acer turn the corner.  After just weeks, Mr. Wong too had stepped down.  For a brief time company founder Stan Shih, 69, pondered returning as CEO, but for now he's slotted into the President and Chairman roles.

V. A New CEO Admits Mistakes, Promises Change

Many had high hopes for J.T. Wong's replacement, former Taiwan Semiconductor Manufacturing Comp., Ltd. (TSMC) (TPE:2330) sales executive Jason Chen, who was announced as the new CEO of Acer in Jan. 1.

After all, as much as Windows 8 and the PC form factor in general have suffered in sales, they're still a vital, high-volume piece of electronics.  Where companies like Lenovo managed to keep PC sales flat and diversify to retain profits, Acer saw an industry-worst decline of PC sales of 24.1 percent in Q4 2013, according to the Time Warner Inc.'s (TWX) analysis house IDC Group.

Acer Aspire V7
Of all the major OEMs Acer saw the biggest decline in PC sales in 2013.

Commentary from Mr. Shih and other Acer officials show signs of hope, hinting at a push for tighter integration on the mobile front.  At a press conference earlier today in Taiwan -- Mr. Chen's first official comments as CEO -- Reuters reported that the new chief spent much of his time dwelling on the company's regrettable mistakes.  He commented:

We wanted to stimulate demand using new technology and we took the initiative more aggressively than anybody else, to the point where we got hurt.  Hopefully we won't repeat the same mistake we made before.

Mr. Chen predicted that Acer would post a full-year loss in 2014, as things continue to fester until the situation improves.  While that was largely expected, what left analysts troubled was the lack of detail provided on Mr. Chen's vision to "hopefully" turn Acer around.

Jason Chen
Jason Chen, Acer's new CEO, address reporters on Monday. [Image Source: Reuters]

Angela Hsiang, an analyst with KGI Securities, comments:

It'll be hard to see a turn-around for Acer this year.  [The] first half is basically impossible, while in the second half it may start to bottom out since the reshuffle will have been going on some time by then. [Chen may want Acer to have more exposure/integration in software] but the company wasn't able to give any concrete strategy on how they're going to develop in the software business.

It may be premature to write the new CEO's strategy off for lack of vision, but Acer today is certainly far weaker than it was in 2011 as it contemplated a deep dive into mobile. 

With every failure of Acer and every success of Lenovo's bullish, diversified EMEA unit, it appears more and more like Mr. Lanci was right and Acer's management was wrong, perhaps too incompetent and shortsighted to believe in his vision. 

Now, three CEOs later, Acer's latest leader has delivered a remorseful mea culpa.  Acer clearly has realized at last that it is bleeding, and that its wounds are self-inflicted, dating back to the fateful 2011 redirection.  The question is whether it can find the path to survival and the fresh vision for the future, which Mr. Chen's talk spoke of of in vague terms at best.

"If they're going to pirate somebody, we want it to be us rather than somebody else." -- Microsoft Business Group President Jeff Raikes

Most Popular Articles

Copyright 2018 DailyTech LLC. - RSS Feed | Advertise | About Us | Ethics | FAQ | Terms, Conditions & Privacy Information | Kristopher Kubicki