The global PC market contracted 13.9 percent in the first quarter of 2013 and Europe seems to have taken the worst hit. Sales of PCs in Western Europe fell off a cliff in the first three months of the year and they are down 20.5 percent year-on-year. Big brands like Acer and HP did even worse, experiencing a drop in excess of 30 percent.
The PC market is in the middle of its worst slump ever, but there might be some light at the end of the tunnel. PC makers believe prices of Windows 8 devices will fall dramatically in the not so distant future.
On Wednesday Acer President Jim Wong said Microsoft is becoming increasingly considerate to its hardware partners and that it is finally starting to listen to their suggestions and ideas. Shifting the focus to cheaper products seems to have been the loudest suggestion. Wong also pointed out that touch enabled devices will open up a lot of possibilities for PCs, but he also warned that many simply don’t need touchscreens on their trusty PCs.
On the other hand, more touchscreens and mouth-watering price points could spell more competition in the cutthroat tablet market, dominated by Apple and Android gear. A number of manufacturers are already working on smaller Windows 8 tablets as well. The success of the iPad mini and even cheaper 7-inch ARMdroids did not go unnoticed, but it will take some effort to make Windows 8 truly competitive in this market, which is already becoming overcrowded.
First of all, Windows 8 is a bloated operating system by tablet standards. This means Windows 8 tablet designs need a lot more storage than their iOS or Android counterparts, which tends to drive the price a bit higher. Windows 8.1, or Windows Blue, could try to tackle this shortcoming. Secondly, they need very efficient x86 chips to be economically feasible, but upcoming x86 SoC designs from Intel and AMD should go a long way towards addressing this issue. Finally, Redmond has to cut Windows 8 prices, plain and simple.
However, Asus CEO Jerry Shen warns that there is no quick fix for Microsoft’s tablet woes. Windows 8 tablets are quite a bit pricier than their Android counterparts and they cost at least $150 more. Shen believes the price gap could narrow to about $50 this year, which should considerably improve Microsoft’s competitiveness.
Acer Chairman J.T. Wang said Microsoft’s willingness to adapt to change is a good sign for the PC industry, reports the Wall Street Journal. He was rather blunt about it, too.
“In the past we consider they (Microsoft) live in heaven,” he said. “But now they go down to earth and they start to learn how people living on earth think.”
Although tablets are generating all the buzz lately, there are some changes on the PC front as well. An increasing number of all-in-ones and more powerful mini-PCs are hitting the market. Ultrabooks sales are still failing to impress, but there is some good news to report on the notebook front as well. Prices of Ivy Bridge notebooks are seeing double-digit cuts, as Intel partners gear up to introduce Haswell-based models over the next few months.
Tablet makers are set to roll out the next generation of cheaper tablets over the coming weeks and it is now clear that competition in the cutthroat market will intensify in the second half of the year.
Last week Acer announced that it will increase R&D spending to between 1.2 and 1.5 percent of annual sales this year. Acer apparently wants to invest more in order to stay competitive in the tablet market, while at the same time improving its notebook line. Acer hopes to sell between 5 and 10 million tablets this year.
Analysts, however, see trouble ahead. Deutsche Bank analyst Ivy Lee said Acer might encounter new challenges that might cause its sales to remain flat, reports Taipei Times. Windows 8 is apparently the biggest risk, since there is still not enough consumer feedback on Windows 8 tablets and notebooks.
Acer recently killed off a couple of its value brands, after it experienced a huge inventory loss in late 2011. Like other leading PC makers, Acer is experiencing a lot of margin erosion and falling market share.
Citigroup Global Markets analyst Kevin Chang believes Acer will continue to struggle in the near future. In a recent note he argued that Acer’s current strategy is simply not working and that it has to be more aggressive on pricing.
As the PC slump drags on, Lenovo, Asustek, Dell and HP will try to hold their ground and fierce price competition is to be expected. As for tablets, Asus and Lenovo have done a bit better than other major PC players. Lenovo did particularly well in China in the last two quarters, while Asus has managed to make quite a name for itself in the Android tablet space with the Transformer series. It also builds Google’s Nexus 7 tablet.
Although Acer is still one of the world’s leading PC makers, it hasn’t had much luck in the tablet market. The same goes for most PC makers, but things could be about to change. Acer has tripled its tablet shipment target for 2013 and unsurprisingly it aims to focus on cheap gear.
According to Focus Taiwan, Acer’s tablet shipments in the current quarter could reach 65 percent of its total tab shipments in 2012. Back in February Acer said it would ship about 5 million tablets this year, up from 1.8 million units shipped in 2012.
The biggest seller is the Iconia B1, an entry level 7-incher with a price tag of just $150. Acer President Jim Wong pointed out that the Iconia B1 is part of a wider product line and not the only model, which means more cheap Acer tablets are in the works.
“We expect this year’s shipments to grow 3.5 times from last year,” he told a press briefing.
The cheap Iconia B1 is expected to account for 15 to 20 percent of Acer’s tablet shipments this year. The company said it would introduce new models with 8-inch and 10-inch screens by Q3, with prices starting at about $200.
The global tablet market is expected to grow to 240 million units this year, outselling traditional notebooks by more than 30 million units.
Windows 8 has failed to rejuvenate the PC market and even hopes of a Win 8 tablet push are slowly evaporating. Jun Dong-Soo, the head of Samsung’s memory division, recently said Windows 8 is no better than Vista, which is pretty much the worst insult one can bestow on a Microsoft product.
Dong-Soo pointed out that the PC industry is still shrinking despite the Windows 8 launch and he also said Redmond’s Surface tablets aren’t doing well, which is hardly a secret. What’s more, Dong-Soo is not alone. Computerworld reports that an HP exec recently said that the Surface RT is too pricey, slow and not very nice to use.
Acer president Jim Wong also believes Windows 8 is not successful. However, Wong told the Wall Street Journal that he expects sales of Windows 8 touch enabled devices to pick up in the second half of the year. This does not mean that we will see tons of tablets, as it is more than likely that the bulk of Windows 8 touch devices will be Ultrabooks and hybrids.
Many are now looking to Redmond for some action, any action will do. IDC analyst Bob O’Donnell told CNET that it might be time for Microsoft to start thinking about some changes.
“There were certain decisions that Microsoft made that were in retrospect flawed. Notably not allowing people to boot into desktop mode and taking away the start button. Those two things have come up consistently. We’ve done some research and people miss that,” he said.
In retrospect, the decision to ditch the start button was probably a wrong call on Microsoft’s part, as many Windows users tend to be rather conservative and fear change. O’Donnell says it is time for Microsoft to rethink its design, relying on input from PC makers. He argued that Microsoft should change the OS, allowing it to boot to desktop mode, as many users simply dislike the new Metro UI.
However, Microsoft is is still not saying anything on design changes or possible price cuts. O’Donnell believes Windows 8 sales are “horribly stalled,” so it might not be too long before the company is forced to take action. In doing so, it will tell the world that its Windows 8 strategy was flawed, on top of its flawed tablet strategy. And smartphone strategy, search strategy, social strategy, consumer electronics strategy and just about every other botched idea that came out of Redmond since Vista.
The Taiwanese outfit is the fourth largest PC maker in the world, and it peaked in 2010, when it briefly ranked second. However, things have gone downhill and on Wednesday Acer announced it expects to post a full-year net loss for the second consecutive year. It is also looking at a $120.1 million write-down on several value brands under its umbrella.
During the PC boom in the late nineties and early 2000s, Acer went on a massive shopping spree and picked up a number of value brands, including Packard Bell, Gateway, eMachines and E-Ten. The write down on said brands dragged Acer to a net loss and the company plans to discontinue the eMachines brand altogether.
Other PC makers are facing similar challenges, as they struggle to reinvent themselves and gain a toehold in emerging sectors, like smartphones and tablets. Acer has a small presence in both sectors.
The company’s phone business is practically negligible and its attempt to expand its presence in China in 2012, with smartphones based on Aliyun, a heavily customized Android-based OS, was promptly ditched after Google threatened to cancel the company’s Android license. Acer had a bit more luck with Android tablets and it is moving into the Windows 8 tablet space as well, but its efforts have been overshadowed by the likes of Asus and Samsung.
Even as it struggles to remain competitive in the PC market, burdened by underperforming value brands, Acer prospects in the heavily contested smartphone and tablet markets look even bleaker.
Brokerage houses Nomura Holdings and UBS are anything but optimistic and UBS cut its target price and maintained the “sell” rating on Acer stock after the report. Nomura was somewhat kinder, but it also maintained its “reduce” rating on Acer, Taipei Times reports.
“Longer term, we think Acer still needs to face the reality of how to rebuild the brand positioning/image for Packard Bell and Gateway amid intense competition and slowing PC industry growth,” said Nomura analyst Eve Jung.