Taiwan's Acer sees better times, to spin off unit

Baker Li

TAIPEI: The head of Acer Inc, Taiwan's largest personal computer maker, held

out hope on Tuesday for an upturn in the battered industry by the year-end.

Chairman Stan Shih was speaking after shareholders gave the green light to

Acer's second restructuring in as many years by approving the spin-off of its

contract or original equipment manufacturing (OEM) unit.

Acer has blamed a drop in demand from OEM customers for a slide in sales so

far this year, but Shih said on Tuesday that business was starting to look up.

"On the OEM side, we have received some orders and we are more optimistic

about our business from the fourth quarter," Shih told reporters. He,

however, did not elaborate.

Like many of its rivals, Acer has been hit hard by the slump in global PC

sales. Sales in the first five months of this year fell 35 per cent from the

same period a year earlier to T$29.98 billion ($871.5 million). For the whole of

2000, sales dropped 20 percent to T$102.76 billion.

The split into two companies - one selling products under the Acer name and

the other manufacturing under contract to other brand names - is designed to

stop the rot by streamlining Acer's operations, Shih said. "High PC growth

doesn't exist anymore. It's more important to improve the quality of management

than to expect overall growth in market," he said.

Shih said a similar strategy had paid off for Acer's rivals. "Our

competition has gradually recovered after dividing the contract manufacturing

and brand-name businesses," he said.

Changing with the times



Acer is not the only global computer giant reacting to a rapidly changing
market. Compaq Computer Corp announced on Monday that it was phasing out its own

line of computer chips and deepening cost cuts in an effort to speed up its

transformation from a hardware company to a business services firm.

Research firm International Data Corp estimates that Acer, probably Taiwan's

best-known brand, is the world's ninth-largest personal computer maker, and

number eight in notebook computers. Acer forecasts its own-brand business unit

will chalk up T$80 billion to T$90 billion in sales this year, a figure it

expects to rise to T$150 billion in 2004. It is planning for profits by then of

T$15 billion, compared with T$6.78 billion last year.

Acer gave no earnings forecasts for 2001. The consensus forecast according to

Multex, the Estimate Directory is for net profit of T$6.32 billion. Shih told

shareholders he expected the contract-manufacturing unit to be established by

the end of this year or in early 2002. It will be called Wistron Corp, not

Welltron as earlier planned.

Acer will initially own 100 per cent of Wistron, which will have paid-in

capital of T$11.5 billion-T$13 billion, but Shih has said he intends to sell as

much as 70 percent of the unit through an initial public offering next year. By

splitting itself into two, Acer aims to eliminate conflicts of interest between

the two sides of the company that have resulted in engineers spreading their

resources too thinly in an effort to please different types of customers.

"From the viewpoint of management, (the move) will further simplify and

specialise (Acer operations), so I believe this will contribute a lot to future

business," Shih said.

(C) Reuters Limited 2001.