Despite Global Growth, Acer Trails in China

Acer Inc. has gained ground against top competitors in Europe and North America in recent quarters, but the PC vendor still trails far behind market leaders in China.

China is one of the world's fastest-growing and most important PC markets. But while vendors like Lenovo Group Ltd. and Hewlett-Packard Co. rack up double-digit growth, Acer's revenue in China declined 16 percent during the first quarter of 2007, the most recent period for which the company's financial results are available.

Bryan Ma, director of personal systems research at IDC Asia-Pacific, pinned Acer's recent decline in China on a bruising notebook PC price war with rival Asustek Computer Inc., which sells computers under the Asus brand. The price war started in Taiwan during 2005 and spilled over into China in 2006.

"They were just duking it out for a couple of quarters, flooding the market as much as they could," Ma said.

In the end, Acer could not match Asus' growth in China, and cut back on shipments.

"Part of that is because Asus has been quite successful at getting into the smaller cities. Acer on the other hand has been a bit more focused on the larger cities," Ma said, noting that most of the growth in China's PC market is taking place in the smaller cities.

Acer shipped 80,000 notebook PCs in China during the first quarter, down from 116,000 notebooks in the same period last year, Ma said. By comparison, Asus saw its first-quarter notebook shipments soar, from 114,000 units in 2006 to 173,000 units in 2007.

Falling notebook shipments dragged down Acer's revenue in China.

China accounted for 4 percent of Acer's revenue, or roughly US$111.6 million, during the first quarter. By comparison, China represented 6 percent of revenue, or $133.3 million, during the same period in 2006.

Acer has done much better in other markets, and is in the running to overtake Lenovo as the world's third-largest PC maker this year.

First-quarter revenue in Europe, the Middle East and Africa, which held steady at 56 percent of sales, rose 26 percent, to $1.6 billion. Sales in Asia, excluding China and Taiwan, also grew 26 percent, to $418.7 million. But Acer's standout performance during the first quarter was in the Americas, where revenue grew 60 percent, to $641.9 million.

Acer's success in these markets has overshadowed its recent pullback in China, where the company ranked sixth in 2006, with a 2.6 percent share of the overall PC market, according to IDC.

Acer didn't respond to questions about why it's first-quarter revenue declined in China during 2007. But Lilac Meng, an Acer China spokeswoman, promised that the company's second-quarter results, which have not yet been released, will show a significant improvement.

Acer's second-quarter notebook shipments rose 65 percent over the same period last year, Meng said, without offering a number. In addition, the company's second-quarter revenue rose 26 percent compared to last year, reaching a "historical record high," she said.

Looking ahead, a better showing in China will give added momentum to Acer's rapidly expanding PC shipments. And given the common language and cultural tradition that China shares with Taiwan, Acer should be in a good position to grow its market share in China.

"If they are able to be successful in that market, it will help boost their global position," Ma said.