At a time when the shipment of PCs is trailing that of smartphones, Taiwan-based Acer has taken a rather unusual route in India – the fastest growing market in the world.
The company put its ailing mobile phone business on hold in December, and has decided to focus on hardware for new technology such as VR and IoT instead, a top executive told Tech in Asia. The PC-maker wants to introduce its VR headsets, wearables, and gaming hardware in India by 2018-19.
Acer, which derives over 90 percent of its revenue from PC sales, introduced a modest portfolio of mobile phones back in 2010. But it didn’t quite take off. In 2015, the company came back, launching two smartphones in India – the Liquid 630s and the Liquid 530 – at US$160 and US$100 respectively.
Acer is adamant on transforming good old PCs.
But fierce competition from phone manufacturers such as Xiaomi, Lenovo, Oppo, and Vivo stalled Acer’s progress in the country.
In 2016, India created a record of sorts with 109.1 million shipments of smartphones, higher than 102.7 million in 2015, according to IDC. In this flourishing market, Acer could manage to sell just 30,000 phones in the entire year. In comparison, Xiaomi sold over a million of its Redmi smartphones by the end of 2016. The phone was launched in August.
Acer has already invested about US$18 million in setting up two assembly lines in India to make PCs and smartphones.
Acer’s intentions of breaking through the country’s smartphone market were amply clear, so why did the company fail to do so?
To start, Acer found it difficult to compete in a market where consumers are willing to compromise on quality of features over price. “We can either have quality or low cost. We don’t want to offer just affordability,” says Chandrahas Panigrahi, senior director of Acer’s consumer business.
To date, however, Acer has operated in the sub US$150 category. While competitors have been able to balance low pricing with good features, Acer has been unable to do so, says Tarun Pathak, analyst at Counterpoint Research.
Chandrahas, however, disagrees. “We have never been affordable. We have tried to keep the prices low, but only if there is room to do so,” he says.
Acer smartphones are currently sold on ecommerce sites such as Flipkart and Amazon, while the company continues to expand its offline experience stores for PCs and laptops. The company did try to push sales of its phones through offline stores, but the move backfired, “because offline has margins attached to it for distributors, which impacts turnover,” Tarun points out.
Fierce competition from Xiaomi, Lenovo, Oppo stalled Acer’s progress.
“Acer entered [India] at a time when other players in the same category were stepping up their efforts to market their phones. They have been successful, but Acer lost out because of its offline push,” he says.
It takes more time to introduce a product offline than on online channels. While Acer would take 3-4 months, companies such as Xiaomi, Oppo, and Vivo – who get over 90 percent of sales from online channels – need half of that time to introduce a product.
Moreover, Acer never really backed up its mobile phone products with strong marketing, Tarun says. Acer’s competitors spend millions of dollars every year just on advertising.
While Samsung continues to lead the segment with a 24.8 percent market share of new smartphone shipments, Lenovo and Motorola hold the second position at 14.8 percent. The next three positions are held by Micromax with 8.8 percent, Reliance Jio with 7.1 percent, and Xiaomi with 6.6 percent. Acer held a market share of 0.03 percent in Q4 of 2016.
Considering Acer’s poor performance in mobile phones, analysts see Acer’s decision to put the segment on hold as a positive move.
“Research is ongoing. We would probably land in a higher cost bracket when we re-launch in a few months,” Chandrahas says.
While Acer says it is still doing research on how to best bring back its phones, the company sees more value in the PC and laptop market than in mobile phones. However, the share of PCs is declining steadily, as PC shipments plummet. According to Gartner, PC shipments fell by 7.4 percent in Q1 of 2016, and by 5.7 percent in Q4.
Banking on innovation
The Taiwan-based company is adamant on transforming the good old PC. Contrary to popular belief, Chandrahas maintains that market share of PCs is not falling: “We just need more innovation.”
To tackle that, Acer is focusing on making PCs more relevant. The company recently launched Acer Aspire Swift 7, which is touted to be world’s thinnest laptop. It has also developed a curved screen, and a detachable laptop to appeal to the tablet-addicted youth. The company holds about 12 percent market share in India PC market. Market leaders HP and Dell together hold about 45 percent of the market.
And yet, ICRA notes that the overall business environment in the personal computer segment, in which Acer primarily operates, continues to remain challenging. Competition from tablets and smartphones, where Acer has a minimal presence, has weighed down the company.
The company is banking on its partnership with Microsoft to bring innovation into PCs and laptops. Tarun of Counterpoint feels Acer should instead expand its partnership to work with Android developers to safeguard its position in India.
Unlike Acer, competitors like HP and Dell have started diversifying into other IT hardware – such as servers – to defy plummeting PC sales. Other IT hardware makers such as Lenovo, Huawei, and ZTE have also staked their claim in India’s growing smartphone market.
Acer products are already VR-ready, and the company wants to use the feature to promote gaming, says Chandrahas.
“Machine learning, AI, robotics, VR – all will be anchored around PCs. It will help in making PCs and laptops more relevant,” Chandrahas says. Acer has joined forces with a VR company called Starbreeze, and has also tied up with IMAX to integrate the technology in its products.
The company recently forayed into IoT-enabled devices for elderly care, and cyclists. Acer is also developing a Garmin-like wearable device. However, India will get to experience these products after the company waters down costs to make it suitable for a price-sensitive market.
The wearables market is also highly competitive. Take for example Intel, which had to shut down its wearable gadgets section after it had to recall all Peak smartwatches in 2016. Fitbit halted sales of its Force wristband in 2014. Jawbone was forced to recall its UP bracelet in 2011.
Leapfrogging onto new and upcoming technologies might redeem Acer of its lackluster performance in mobile phones. Analysts at Counterpoint Research, Gartner, and ICRA second the thought but warn that doing too much at the same time may dilute the brand’s importance.
As far as Acer’s re-launch of phones is concerned, Tarun of Counterpoint says, “It could be too late. By the time Acer comes back with its offering, existing players would have further strengthened their position.”
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