Monday, June 6, 2011

Asustek taking cautious attitude toward Acer dumping 3 million notebooks in Europe

As Acer has announced it will provide channels with US$150 million in sales allowances to clear inventory, sources from the notebook industry believe such action will result in close to three million notebooks from Acer with significantly low prices appearing in Europe's retail channels and could seriously mess up Europe's PC market status, while Acer's competitor Asustek Computer is also expected to be impacted. In response to Acer's move, Asustek has already taken a cautious attitude toward the upcoming effects.

As the company will declare losses of US$150 million hoping to return its business to a right track, Acer's second-quarter results are in grave danger of turning to losses, with market watchers estimating that Acer's EPS for 2011 might drop below NT$2 (US$0.07) and its stock price is also facing a crisis to maintain above NT$50.

With Lenovo also recently announcing plans to acquire Germany-based consumer electronics vendor Medion, helping Lenovo to achieve 14% share of Germany's PC market in the future, and becoming the third-largest PC vendor in the country, sources believe Europe's PC market in a short term will likely suffer from fierce price battles.

Commenting on Acer and Lenovo's actions, Asustek CFO David Chang believes if Acer's inventory is mainly previous generation products, it will not affect Asustek much, however, if the inventory includes the latest Sandy Bridge-based products, the impact will appear. To counter the moves, Chang pointed out that Asustek has already planned several measures for all possible situations and it should be able to minimize the impact. As for Lenovo's acquisition of Medion, since the strategy will help Lenovo raise its global PC market share by only 0.3%, the affect will not be significant in the short term, but for the long term, it is still hard to predict.

Chang also noted that Asustek is taking a cautious attitude toward the significant change in Europe's PC market ecosystem and in addition to the impact brought by Acer, Samsung Electronics and Lenovo are also competitors that Asustek is paying close attention to.

Asustek is currently seeing strong growth in Europe with its channel retail partners all having healthy levels of inventory. Compared to its competitors which have inventory levels of over 10 weeks, Asustek is maintaining its level at around 4-5 weeks, and the company will not recklessly cut its prices to compete for market share.

Sources from notebook players pointed out that Acer's strategy of cutting prices to compete for market share will give its competitors strong pressure, but the affect should be just short term, and Acer should return to the right track after digesting all its inventory. Therefore, most of Acer's competitors are expected to take a wait and see attitude over the situation.

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