Acer to protect margins, sees sales jump

TAIPEI (Reuters) - Acer (2353.TW), the world's No. 2 PC maker, aims to boost revenue by more than 70 percent over the next three years, while maintaining margins to avoid repeating a similar meteoric rise and fall less than a decade ago.

Much of the growth is set to come from low-cost netbook PCs, which Taiwan's Acer expects to jump over 50 percent in 2010, Chairman J.T. Wang said, citing an improving global economy and a shift to selling smaller, more mobile PCs for the explosive growth.

Acer was the fastest-growing PC brand in the third quarter, shipping over 25 percent more units than it did a year ago and outperforming Hewlett-Packard (HPQ.N), Lenovo (0992.HK) and Toshiba (6502.T), according to industry tracker IDC.

"The idea is to reach $30 billion as soon as possible," Wang told Reuters in his first public comments since Acer beat Dell (DELL.O) to become the No. 2 PC maker in the third quarter.

"When we look at the overall market, if the PC market starts to grow from next year and handhelds have the potential to become a $200 billion market, $30 billion is a humble target," Wang, who's been with the company for 28 years, said in an interview.

Wang joined Acer's predecessor Multitech as a sales engineer in 1981, and took over as chairman in 2005 after the company's founder Stan Shih retired.

"Acer's seeing very strong growth, and is likely to outperform the market in the long run," said Michael On, managing director of Beyond Asset Management with some $60 million under management but does not own Acer shares in its portfolio.

"But $30 billion sounds like a very ambitious target, and it's probably a best-case scenario they're predicting."

Acer's revenue is expected to increase to T$573 billion ($18 billion) this year, rising to T$821 billion ($25 billion) in 2012, according to 22 analysts polled by Thomson Reuters I/B/E/S.

Acer, Taiwan's best known brand, has transformed itself from being a contract manufacturer of laptop PCs for global brands.

The company commanded about 14 percent of the global PC market in the third quarter, coming second only to HP's over 20 percent share, according to IDC.

Acer expects to ship about 12 million low-cost netbook PCs this year, and is currently the biggest player in the field pioneered by crosstown rival Asustek (2357.TW) in 2007. About 26 million netbook PCs are expected to be sold this year, IDC said in June.

Acer shares have jumped about 94 percent so far this year, outperforming HP and Dell, which rose 32 and 48 percent, respectively.

HOLDING ONTO MARGINS

Wang said Acer would be able to maintain its gross profit margin of about 10 percent even as prices of components such as LCD panels DRAM memory chips climb as demand for technology products increases.

Such attention to margins would be important to avoid a scenario like Acer's rapid rise in the 1990s, when the company gobbled up market share at any cost and then fell into several quarters of operating losses.

"If you look at the past, even when component prices were up or down, we were able to maintain our gross margins at about 10 percent," Wang said. "I expect this to continue."

Spot prices of both LCD panels and DRAM memory chips that are used in every PC have climbed in recent quarters on growing demand for flat-screen TVs and as chipmakers cut production to arrest rapidly falling prices.

"What's different this time around is that they're growing sales without compromising on margins, which is key," said UBS analyst Edward Yen. "If margins were thinning, then that'd be a big problem, but they look comfortable now."

Acer's operating profit margin in July-Sept stood at about 2.8 percent, lower than peers such as Dell, which had a 5 percent operating margin in its fiscal second quarter.

In its pursuit for a larger market share in what Acer calls a multi-brand strategy, the firm has acquired brands such as Gateway and Packard Bell to raise its profile in markets such as the United States where it has a lower profile.

Wang said Microsoft's (MSFT.O) launch of its Windows 7 operating system on Thursday is expected to help sales, as consumers look to upgrade computers running on Vista or the eight-year-old XP system.

"It's positive," Wang said. "Looking at Microsoft the past 10 years, they've made the operating system more complicated all the way. This time, they've made it simpler. It's a totally opposite direction of their design philosophy."

Wang said Microsoft was working on a new operating system targeted at corporate customers, but he declined to give details.

"The tides are turning and it's time for most customers to consider switching to the new system (Windows 7)," Wang said. "I don't know when the new corporate-focused system will be launched, but they're looking at designing one now."

Microsoft officials were not available for comment.

(Editing Anshuman Daga)