Acer Plans to Expand Server Sales in Competition With H-P, Dell

Acer Inc., the world’s second-largest personal-computer vendor, plans to boost sales of more- profitable servers this year as it takes on Hewlett-Packard Co. and Dell Inc. in offering computers to companies.

“You can’t be a PC player just on consumer, we need to be a PC player in all segments,” Gianfranco Lanci, President and Chief Executive Officer of Taipei-based Acer said in a Feb. 5 interview. “This year, you’ll see a big effort from our side on commercial.”

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Acer overtook Dell in the third quarter to become the world’s No. 2 PC company by offering low-cost Aspire One netbooks and higher-priced Ferrari-branded notebooks aimed at consumers. Servers, more powerful computers used to store information and manage networks, will account for around 4 percent of Acer’s sales this year and offer profit margins up to double that of its other products, Lanci said.

“That’s very aggressive and would be good news if they can make it work,” said Calvin Huang, who rates the stock “buy” at Daiwa Securities Group Inc. in Taipei. “The corporate market is going to pick up and consumer will continue to climb, so they’ll have a double engine for growth.”

Acer shares climbed 128 percent last year in Taipei, outpacing a 78 percent advance in the benchmark Taiex index. The stock’s 12 percent drop this year is in line with the decline by the Taiex.

The company released so-called blade and modular servers in November, the first move in its plans to offer a full line-up of servers by the end of this quarter, Lanci, 55, said. That will also help it win commercial clients for the company’s desktop and notebook computers, he said.

Ferrari Notebooks

In June 2008 the company introduced Aspire One, a low-cost netbook for consumers that helped Acer grab share during the global economic recession. The company also sells red notebooks bearing the Ferrari brand and logo for more than $2,000.

“We took the right decision to develop consumer first and then commercial,” Lanci said. “The other way around would have been a disaster.”

Global server shipments dropped 17.9 percent in the third quarter from a year earlier as companies cut budgets amid the global recession, researcher IDC said in a December report. International Business Machines Corp. led the market by revenue, followed by HP and Dell, it said.

Shipments of computers, excluding servers, climbed 2.3 percent over the same period as Acer’s 14 percent market share took it to second place behind HP, the Framingham, Massachusetts-based researcher said in a separate report.

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Server Margins

Gross margin for servers, which measures the percentage of sales less the cost of goods sold, will be 15 percent to 20 percent, Lanci said. The figure for the company as a whole was 10 percent in the third quarter, according to Bloomberg data.

“Maybe they expect the server segment will be booming in coming years and they want to join,” said Angela Hsiang, who rates Acer stock “outperform” at KGI Securities Co. in Taipei. “It will need some time. Because they didn’t do this product before, strong R&D capability is still needed.”

Hewlett-Packard, the largest PC supplier, got 13 percent of its revenue last year from its servers and storage division, with 11.3 percent of its operating profit, or revenue less the cost of goods sold and administrative expenses, coming from that unit, according to Bloomberg data. Overall gross margin at the Palo Alto, California-based company was 24 percent.

Spend Money

Dell, the No. 3 PC vendor, got 12 percent of its revenue from its servers and networking division during the third quarter, according to Bloomberg data. IBM, the largest server vendor, withdrew from the PC business after it sold that unit to China’s Lenovo Group Ltd. in 2005.

“Acer may need to spend some money to build up a distribution network for servers, so it may not be very profitable initially,” said Daiwa’s Huang.

Acer’s sales will be aided by a 30 percent increase in its marketing budget, excluding sponsorships, Vice President of Marketing Gianpiero Morbello said in a separate interview, declining to give details. The company currently sponsors the Scuderia Ferrari Formula One car racing team, Inter Milan soccer club and the Olympic Games.

Revenue will climb around 15 percent this year with shipments of notebooks to increase 35 percent to 40 percent and surpass 40 million units, Lanci said. Acer will report preliminary 2009 revenue and profit sometime this week, with full-year sales little-changed from 2008, he said.

Acer is expected to post a less than 1 percent increase in net income for last year to NT$11.8 billion ($367 million), according to the median of 23 analyst estimates compiled by Bloomberg. That figure is expected to climb to NT$16.4 billion this year.

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