Guess Which Devices Are Nursing PC Giant Acer Back To Health

Acer tells the public it’s pulling away from PCs in favor of mobile devices. It showed a smartwatch, tablets and rack of smartphones at the major tech show in Taipei this year. But Acer also acknowledged then that its traditional product the PC would lead business growth for now.

It turns out that PCs, particularly notebooks, gave the struggling company a high-speed lift in the third quarter as shipments grew 27% year-on-year. That growth follows falling prices across the PC industry, a shift in Acer's sales tactics and the technological merits of its gear such as Chromebooks and 2-in-1’s.

Acer was overdue for a lift. It has dumped its management twice since 2011. Its first shakeup, the departure of Italian CEO Gianfranco Lanci, shrank business in Europe where Lanci had sales connections. The company lost money in 2013 as PC sales sank worldwide but saw profits double in the first half of this year compared to the same period of last.

Profits squeezed, Acer talked up development of smartphones, tablets, tablet-PC convertibles and anything but the basic computers that the Taipei-based manufacturer has pushed out en masse since 1976.

But PCs never went away. Acer was once the world’s No. 2 PC vendor and last year ranked No. 4. PCs make up about 77% of Acer’s product stream and mobile devices just 14%. Now Acer’s dominance as a Google Chromebook contractor gives the PC a new shine after years of becoming something of a swear word in mobile-mad consumer high-tech.

But Chromebook sales make up a thin share of Acer’s total gear, indicating that power is switched on for its other stuff. That’s where price comes in. Notebooks for all brands combined grew 4.2% year-on-year in the third quarter to 45.8 million because of falling prices, Taipei-based market research firm TrendForce reports. PC vendors across brands are cutting prices to stay competitive and attract buyers tempted by sexier but costlier mobile devices.

Although profit margins will drop with unit prices, Acer can cap costs because its PC shipments have reached an “economy of scale,” says Jane Yeh, analyst with the Market Intelligence & Consulting Institute in Taipei. “Acer has been actively expanding Chromebook and low-cost notebook PC product lines,” Yeh says. “As one of the industry’s pioneers to launch low-cost models, Acer’s notebook PC sales have seen positive growth.”

Acer is taking those low-cost PCs to new sales channels after CEO Jason Chen “visited and consolidated” relations with distributors in the first half of the year, Yeh adds. That effort could pick up where Lanci left off.

Supporting the industry revival after years of falling sales, as many as 600 million people use PCs that run on Windows XP, which stand to be replaced by newer machines as Microsoft quits supporting the 13-year-old operating system. In emerging markets, 80% of the population has no PCs, and Acer expects minds to change.

Acer attributes its third-quarter gain to products including Chromebooks for students, convertible PCs and 2-in-1 notebooks, company publicist Stella Chou says. US sales were particularly strong in the past quarter, the company notes.

But the PC rally may end this quarter. TrendForce says it’s “concerned that that momentum will be unsustainable” across brands, with a decline of 3-5% between the third and fourth quarters. Hewlett-Packard , not Acer, released the “top performing notebook” in the third quarter, it adds.

Acer may have over-shipped PCs from July to September, some analysts fear, leaving retailers stuck with inventory later. PCs sales next year will be flat at best compared to 2014, they add. Smartphone shipments will grow 12% next year to 1.4 billion, says market research firm Strategy Analytics.

“The global economy is not too strong, with sales rates weak outside the United States,” says Vincent Chen, at tech analyst with Yuanta Securities in Taipei. “Also smartphone growth is getting better and better, plus you can use them to go online. So what’s the PC for?”