Why HP Shouldn't Worry About Acer's Trash Talking

THE OTHER SIDE OF THE COIN

I have to give Acer credit: the Taiwanese computer maker has truly thrived over the last five years. Ever since J.T. Wang assumed the role of chairman and CEO in 2005 and radically changed the company's approach to the U.S. market, Acer has quickly grown from an also-ran to a strong number two in the worldwide PC market. Now Wang has publicly declared that his company will displace HP as the world's largest computer maker by the end of the year.

But here's why HP shouldn't worry -- even if Wang makes good on his pledge.

Let's say Acer topples HP and begins shipping more PCs by the end of year. I'm guessing Acer will have to sell a lot of low-priced netbooks and notebooks in the coming months, which may hurt the company's profit margins. So what ultimately will be the cost of achieving that goal? Acer will continue to push its ultra-cheap PC model to gain market share, but it may have to sacrifice profits to get there.

And if Acer is generating tons of revenue but little profit, well, then there's less money to go to R&D. I believe one of the things that hurt Dell's standing in recent years was the fact that the company's systems lacked innovation. Dell built its empire with slick marketing, excellent customer service and, perhaps most of all, a highly optimized supply chain that allowed it to sell PCs for extremely attractive prices.

When I look at Acer, I see shades of Dell. I see a company committed to winning on a single front -- price. I see a company that like Dell before it discovered a way to churn out a lot of inexpensive hardware by finding cheap components and slapping Windows and Intel together like a lunch lady making peanut butter & jelly sandwiches in the school cafeteria.

What I don't see is a company that has a particularly strong channel presence. What I don't see is a company that has a lot of innovation or style. What I don't see is a company that, despite its success, has the kind of brand popularity that Apple or even HP and Dell currently have in North America. And I don't believe Acer can beat the likes of HP long term without those things. Even if the company wins the shipment battle by year's end, HP will still be making more money per unit and have enough channel business, branding and cutting edge technology to compete with Acer for years -- if not decades -- to come.

Again, I give Acer a lot of credit. The computer maker has made some bold moves since Wang's appointment, such as its acquisition of Gateway and its entry into the smartphone market. The bottom line is this: few CEOs could claim as much success with their initial five-year plans as Wang. Acer has become a dominant IT power under his leadership.

But if Acer wants to not only beat HP this year but stay at the top, it's going to have to change.


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