Earlier this month, CRN Senior Editor Joseph Kovar visited Stan Shih--founder of the Acer group of companies and among the key drivers of the worldwide IT industry--at his Taipei, Taiwan, office. Shih, who plans to retire this year, shared his company's strategy for re-entering the U.S. market.
CRN: You've announced that you are going to retire from Acer?
SHIH: Yes, end of this year. That's [been] my plan for maybe 10 years.
CRN: Why now?
SHIH: Because I'm about 60 years old. December 18 of this year is my 60th birthday.
CRN: When did you decide to retire at 60?
SHIH: Almost 10 years ago. At the end of year 2000, we transformed Acer [into three separate companies], and there were some concerns I might have to retire with regret. The timing was already decided, but I couldn't turn Acer into a more competitive [company]. To survive was not a big task, but to become a winner, I think, was a question at that time.
CRN: What was the problem you were facing at that time?
SHIH: We were losing our competitiveness. The ODM [original design manufacturing] business we lost to Quanta and Compal. And in the brand-name business, we were losing money in the U.S. continuously, and not doing [well] in Europe. Although in Asia, we were always making money.
So, brand name was in doubt, and ODM was losing its competitiveness. So we made a transformation to split Acer and [our OEM business unit] Wistron. That helped. After one-and-a-half years, we started getting momentum.
CRN: Was there a certain thing that just one day made you realize everything was OK?
SHIH: Oh, no, it was very slow. For example, in the brand-name business, we got better and better. Then in the second quarter of 2002, for the first time in many, many years, the U.S. operation broke even. That was a major achievement.
Of course, the other regions already were making profits. But in the U.S., we continued to scale down. Our main direction was to try to develop a winning formula, or a new business model. The winning formula we found was in Europe, where we were very competitive. So at the end of 2003, we transferred a European executive, Rudi Schmidleithner, to the U.S. to manage there. We tried to duplicate the European formula.
CRN: What is Rudi doing differently.
SHIH: Because in the past we were focused on small distributors, or tried to approach education and some vertical applications like health care, it looked like we had some markets. But always, from the return on investment point of view, it wasn't good because it wasn't a simple, wasn't a focused, model.
The [new] focus is to just support the distributor. A two-tiered distribution model is our only model. In the past, we had [a direct-sales arm] Shop Acer. It was confusing.
So right now, the Europe model is very simple, and reduces our overhead. It keeps room for our distributors to help us to serve our big number of dealers and VARs. We minimize the inventory. So from the price competitive point-of-view, it was good. From the new product introduction point-of-view, this helps us keep competitive in the PC business.
Our business model also tries to minimize our inventory. Usually, in Acer, we keep one week of inventory. We also don't want our distributors to keep too much inventory. We watch their inventories and make sure it's really sold through to the customer.
CRN: When you say Acer has one week of inventory, you mean overall throughout the entire company?
SHIH: The entire company. One week. We not only tried to minimize our inventory, we also tried to understand our distributors' inventories. In [the old] model, sometimes we tried to push inventory into the channel, and we got burned in the retail channel in the U.S., because they have easy returns and price protection. So the retail channel [is] not such a focus for us.
We made sure our internal overhead was really minimized. We made sure our logistics and supply-chain management was very effective.
All our product range originally came from one company. But now [our notebook PCs come] from three major suppliers in Taiwan. Now every line of our notebook PCs is very competitive.
CRN: You said that in the past all notebook PCs came from one company.
SHIH: Yes, it was Acer, and then Wistron. But right now, we're also working with Quanta and Compal. Three vendors. In Europe, our notebook PC position is number two, almost number one.
CRN: But in the U.S?
SHIH: In the U.S., it's still nothing, but we are gaining recognition. It's built upon all the distributors we already lined up. The commitment, the business plans, all the terms and conditions are settled down. So we are ready to take off.
CRN: And will that be under both of Acer's brand names, Aspire and TravelMate?
SHIH: Yes. In Acer's position today, notebook PCs are in a leading position. So desktop PCs are our growth momentum because, compared to notebooks, there is still a big room to grow. I'm talking about globally.
CRN: Is there a place for Acer in the U.S. desktop market?
SHIH: I think so. We are trying to build our position in notebooks first. But for desktops, with an ODM manufacturer like Foxconn [and its] local supply infrastructure, we are getting momentum in Europe. Originally, we used the [contract manufacturing] approach through a local assembler, and we had to be involved in many, many key components. That model was not so effective in Europe. Then we started working with Foxconn, which started doing everything for us. We became much more competitive in that way. In China, we also leverage Foxconn. And in the United States we will do the same. Foxconn is the key. Because if you buy motherboards and boxes from different vendors, it becomes very complicated for our operation. Our operation is to totally leverage the vendor, leverage the distributor, serve them and minimize our overhead.
CRN: When will the relationship with Foxconn produce product in the U.S.?
SHIH: I don't know when. But we are building relationships in China first. And Europe, it just started recently.
CRN: No timetable for servers in the United States.?
SHIH: No, because it really requires a lot of support. The difference in our server business in the past and today is, in the past, we only sold basic boxes. And now, with our support capabilities, we are selling higher configurations, including a lot of storage. So the ASP is many times the original approach. So this is the right way.
CRN: What is Acer's strategy for the digital home?
SHIH: Acer is an IT company. So when we move to the digital home, we still try to approach it from the IT way. So we don't make the same products as a consumer company. So, a TV, we call an eTVD. 'e' for empowering, 'D' for display. We have an empowering function and a display function. We will introduce some [related] products in the second half of this year. The major product we call the ePC, or empowering PC, for the digital home. It will have an e-mode, [meaning] simple mode for the home user. Then, of course this also can interface with a traditional TV, or a new digital TV, or a new Acer eTVD. Of course, we have other products in the digital home area.
CRN: How big a part of Acer's business is the digital home?
SHIH: We don't have any expectations. We don't care when the digital home is really going to take off.
CRN: Because you'll already be there?
SHIH: That's the concept. We will also introduce more and more monitors with TV capabilities. Because, anyway, you need to buy a monitor for your desktop. We will try to make sure it has a good function for a TV application and a multifunctional monitor.
CRN: Acer has gone through several reorganizations. Is the current organization set, or do you expect things to change?
SHIH: I think, because I'm going to retire, from my personal point of view (the organization) is set. Three major subgroups: Acer Group, BenQ Group and Wistron Group. They all have their own clear business goals. Of course, in IT companies every company is watching [for] new opportunities.
Last year, our Pan-Acer [Group] revenue was $15.7 billion, and I'm expecting this year the growth rate to be 40 percent for the whole group, or more than $20 billion. That's a good gift for my retirement. [It's] one of the highest growth rates in my career in the Acer group. There is still a lot of room to grow.
CRN: So, in the future, Acer is a three-company organization?
SHIH: One of the three companies. In the future, no one will call it the Pan-Acer. Because I started Acer, until now it's called the Pan-Acer Group. But after I retire, maybe they don't like the term. They'll say, I'm Acer Group, or I'm BenQ Group or I'm Wistron Group. But I think they've already established a good foundation.
CRN: You're not leaving this industry, right?
SHIH: I will invite some Acer executives who managed Pan-Acer and who took early retirement to found a company called iD Soft Capital. This [company] will do consulting and fund management, venture capital management. For consulting, I'll focus on two areas. One is postincubation services for start-up companies before their IPO. The second is re-engineering services for medium and large-size enterprises. The postincubation may be focused on high tech, but the re-engineering can [include] other industries. My team has more experience than anybody else in this region.
CRN: Will that be focused mainly on Asian companies?
SHIH: The investment will be in United States, China and Taiwan. Consultation will start in Taiwan and then in China.
CRN: If you wanted to start off as a brand new person coming into the IT industry today, where would you focus?
SHIH: I would say the current Acer business vision would be my first choice. The reason is, this is the future business model. Asset-light. For a knowledge-based economy, I would like an asset-light company. No factory. I don't have a lot of inventory. It means the knowledge density or content is high. A brand-name business model. An IP development business model.