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Acer and Microsoft: A tale of mutual decline

In three years, Acer has fallen from the world's second-largest PC vendor to hitting a 12-year low. James Sanders explores Acer's recent misfortunes and how this affects the industry at large.

Acer

With the recent departure of Acer's CEO, JT Wang, the good fortune of OEMs appears to be ending, as Microsoft is now encroaching on their territory with their own devices like the Surface and Surface Pro. Despite the Surface receiving a lukewarm reception and being a $900 million write-down for Microsoft, the state of the PC market has shifted significantly from where it was before the launch of Windows 8. For this and other reasons, Microsoft’s CEO, Steve Ballmer, has abruptly announced his intention to leave when a successor has been named. While it appears that the root of these problems is Microsoft, there is plenty of blame to go around for the present state of things.

A brief history of Acer's decline

If one was to hasten to pick any one decision that ultimately resulted in Acer’s fate being sealed, it would be the 2011 exit of CEO Gianfranco Lanci. Under Lanci’s leadership, Acer’s valuation doubled from $10 billion to $20 billion. In addition, Acer’s global market share increased substantially and led to the purchase of Gateway Inc. (and by extension, budget manufacturer eMachines) in 2007, to increase their presence in the United States. Packard Bell, which had a thriving European operation, despite shuttering U.S. operations in 1999, was purchased by Acer in 2008 for the same reason.

Lanci’s departure was a result of his desire to reform Acer to widen their focus to mobile phone and tablet products. This strategy was presumably to counter HP, who had then recently acquired Palm and was preparing the release of the HP Pre 3 smartphone and TouchPad. Other PC vendors, such as Lenovo and Sony (then Sony Ericsson), were also preparing Android phones and tablets at the time.

Ultimately, expanding these operations required more engineers and global talent to be hired for product design and engineering. The interests controlling Acer feared this was a “de-Taiwanization” of the company, which led to end of Lanci’s tenure at the firm. Somewhat reflexively, Lanci’s successor, JT Wang, declared in August of 2011 that “tablet PC fever is starting to cool down.”

Under Wang’s leadership, Acer ceased production of netbooks at the end of 2012, in favor of similarly-functioned Chromebooks sans the Microsoft licensing fee. Acer has increased their tablet offerings, spanning both Windows and Android products, but sits at 2.5% market share as of Q3 2013. With the release of the iPad Air, Samsung Note 10.1 (2014), Kindle Fire HDX, and possible refresh of Google’s Nexus 10 in time for the holiday season, Acer’s market share in tablets is expected to decline.

For Q3 2013, Acer’s PC market share was 9.8%, which is a 22.8% decline from Q3 2012, according to Gartner. Acer isn’t the only one suffering, because PC sales have declined over the last six consecutive quarters. The problem of shrinking sales is an industry-wide problem, the root cause of which may be Microsoft.

Microsoft's hardware initiatives and new software direction

With the exception of Microsoft’s range of input devices, such as the Natural Keyboard and SideWinder joystick, Microsoft’s attempts at producing hardware have been lackluster, fraught with quality control issues, and generally poorly received. The Xbox 360 had failure rates estimated at 33%, with issues surrounding bad heat dissipation to the improper use of lead-free solder unsuited to the temperatures the device reaches. The Microsoft KIN smartphone was discontinued after 48 days for simply being unwanted. The Zune, Microsoft’s answer to the iPod, was not quite a failure as much as it was a bumpy transition; it was incapable of playing music wrapped in Microsoft’s own PlaysForSure DRM scheme.

Given these less-than-stellar results from previous hardware ventures, the announcement of the Surface came as something of a shock to the industry at large. Microsoft and OEMs have heretofore subsisted on a mutual partnership, one that Microsoft seems to be abandoning. They have doubled down with the release of the Surface 2 and Surface Pro 2 but have been struggling to unload their first-generation tablets on consumers. Over the summer, Microsoft was giving away Surface tablets to attendees of the ISTE conference and announced education-exclusive pricing of $199 for the 32 GB Surface RT. This Black Friday, Best Buy will offer the 32 GB Surface RT for $200.

Aside from Microsoft’s foray into hardware, the case can be made that the problem is that consumers do not want Windows 8. Recall the aforementioned Gartner survey, which indicates that Q3 2013 is the sixth consecutive quarter of worldwide PC shipments. Windows 8 hit RTM on August 1, 2012, with general availability on October 26, 2012. The first full quarter after general availability, Q1 2013, was met with a 14% drop in sales compared to Q1 2012, according to IDG. The interface changes that accompany Windows 8.1 are not a substantive improvement.

Windows 7 reached general availability on October 22, 2009. According to NetMarketShare, the market share for Windows 7 in Q4 2010 -- approximately a year from release -- was 20.27%. At present, we are slightly over a year from the release of Windows 8, and the combined market share of Windows 8 and 8.1 this month is 9.25%. Windows XP, which faces the end of extended support in April 2014, remains at 31.24%. Windows 8 is not a successful product by any meaningful metric, and perhaps the toughest challenge any company can face is when their biggest competitor is their own back catalogue.

Final thoughts

Acer’s misfortunes are a symptom of an industry-wide ailment, for which there is no immediate hope of a correction. The only vague prospect of salvation is the eventual naming of Steve Ballmer’s replacement as CEO of Microsoft. Who do you think would be best suited to run Acer or Microsoft, and how would you change the present state of things at those firms? Let us know in the comments section below.

About

James Sanders is a Java programmer specializing in software as a service and thin client design, and virtualizing legacy programs for modern hardware. James is currently an education major at Wichita State University in Kansas.

16 comments
mike
mike

I just don't get it, I JUST DON'T GET IT! I run an IT shop and ALL my customers (except those over 55 who are afraid of any change) want W8/8.1. I use both desktops and tablets and the only complaint is IE11 being integrated into the O/S and if you have an app on .net framework built around IE, there is no way out. I have downgraded 8.1 to 8 on surface pro 2 tablets to keep the extra battery life and speed they offer. Every physican, assistant, nurse and staff love them. They're fast, perform well and if you put the right shortcuts / icons in the right place then the user has NO ISSUES!

There is no less acceptance over any other desktop since XP and even XP was met with resistance. The desktop you see is the desktop of the future and ALL o/s will follow suit one waay or another. Apples new v7 for their phone is not much different than W8 and every smart device on the planet porves that a tile desktop is NOT TOO DIFFICULT to learn. Just wait until BYOD comes in full force.

Gisabun
Gisabun

Difference between the two is that Microsoft really hasn't declined much. sure Windows 8 is a near disaster but their other products are still doing well.

As for Acer, they sell crap. I know very few in computer technologies would buy their hardware. They sell the cheapest stuff because they like to buy hardware parts that are outdated. They also like to jump on the bandwagon of msake a fast buck stuff like Chromeboxes [a big blunder] and Chromebooks [another blunder and just using old hardware for something].

I know of a few who bought Vista computer and the systems came with 1GB of RAM. Fine for Windows XP hardware but not Vista [I'm sure it was XP hardware originally]. And every single system required replacing all the RAM because the memory needed was proprietary/odd.

laryan
laryan

LOL Microsoft is posting record revenue/profit and has very recently built new billion dollars businesses. WTF are you talking about?

adornoe
adornoe

The stupidity of analysts and bloggers, never ceases to amaze.

<i>Aside from Microsoft’s foray into hardware, the case can be made that the problem is that consumers do not want Windows 8.</i>

That statement above displays the total ignorance of writers like the one above.

Consumers are quite content with the PCs they currently own.  That means that, they don't see a need to upgrade or update their current laptops or desktops.  What they have is good enough, especially if those devices are no more than 5 years old, which means that, they'd still be using Windows 7, which is still quite capable and just about the equivalent of Windows 8 for most things.  So, why purchase a new "washer or dryer", when the one you still have does the job quite nicely. 

The installed base of Windows machines, is not getting reduced, and in fact, it could be increasing with new purchases of Windows 8/8.1 machines.  Nobody does a study on current installed machines. Everything the "analysts" and bloggers talk about, is new sales.  New sales is not how to judge the consumers' total usage of OSes or devices.  

So, NO!!!, the case can't be made that "consumers do not want Windows 8".  The case can be made, with certainty, that people don't need to purchase new computers when what they currently have is more than adequate for their needs. 


 

joekbarrett
joekbarrett

The reason for Acers decline may be management but more likely it is the quality of product.  I have a very hard time recommending them to clients.

si bokir
si bokir

Our business like 31% others postponed large scale upgrade from Window XP because of combined blunders by Microsoft. i) Windows Vista upset our test users ii) Windows 8 anticipation canceled our upgrade to Windows 7 iii) Windows 8 turns out to be a BIG PROBLEM for business because a laptop/desktop does not need to be like a tablet. As a result we will still use Windows XP until our hardwares are worn out to be repaired or replaced with Windows 7 on a one by one basis. if Microsoft had drawn the line that Windows 8 is for mobile only OS, we would have had upgrade our PCs to Windows 7 with more confidence.

si bokir
si bokir

Our business like 31% others postponed large scale upgrade from Window XP because of combined blunders by Microsoft. i) Windows Vista upset our test users ii) Windows 8 anticipation canceled our upgrade to Windows 7 3) Windows 8 turns out to be a BIG NO for business as Microsoft failed to recognize a laptop/desktop will never be a convenient tablet. As a result we will still use Windows XP until such time that we need to upgrade to Windows 7.

JamesAltonSanders
JamesAltonSanders

@laryan If there wasn't a significant and substantial problem of direction at Microsoft, Ballmer's exit would not be fast-tracked as they're doing now. Microsoft's stock jumped at the time the announcement was made, which was widely interpreted as an indictment of Ballmer's tenure at the company.

$2 billion of Microsoft's profit is from software patent royalties assessed on Android device sales. Most of their growth is in SQL and Cloud services. Their OEM revenue declined 7% last quarter. The Xbox and Surface products have not been a profitable venture for Microsoft, but they're being propped up by other divisions at the company.

iswayn
iswayn

Get real Adorno.....!!!

JamesAltonSanders
JamesAltonSanders

@adornoe I'm frequently asked how to roll back to Windows 7 on new computers. The plural of anecdote is not data, but at the same time, there's a lot of people complaining about Windows 8.

I use sales figures and statistics derived from User Agent data - that is, current installed machines -  to make this claim. They indicate the same thing: Windows 8 is demonstrably less popular at this point in the product lifespan than Windows 7 was at this same point.

If you compare those two points in time, the install base of Mac OS X was 5.18% a year in to Windows 7's lifespan. At present, it is 7.72%. A 2.5% increase isn't drastic, but it's nothing to sneeze at, especially considering that Apple appears to have no interest in catering to business deployments of Mac OS X. Thus, it can be reasonably inferred that most of that increase is consumer demand for Mac OS X. 

WhoRUKiddin
WhoRUKiddin

@adornoe 

I don't think you are correct about this. After watching people demo new PCs at retail locations and seeing the drop in prices along with the trend to skip that Win 8+ PC and buy a tablet instead, I'd say the bloggers got it right.

When people who purchase new Win 8+ PCs are re-selling them on craigslist for far less than they purchased them for, you know the value is diminished in their minds. I doubt that is because of the hardware but is a direct result of the software experience that left them feeling they had purchased an inferior PC.    

I have been successful lately at harvesting a fair number of these Win 8+ PCs on the cheap, installing Ubuntu or Mint Linux and turning them for, on average, $100.00 over the price I paid on CL. I recently purchased a 2 month old Toshiba laptop that the guy had accidentally whipped out the Win 8 install on for $110.00, he paid around $340.00 new for the device on sale but did not want to have to deal with a complicated process to recover Win 8 or ship the device to Toshiba for a fresh install. I switched off secure boot, installed Ubuntu 13.10 and now have a new laptop I got for very little investment. 


adornoe
adornoe

@si bokir Can you tell me what the difference is between Windows 7, and Windows 8/8.1 when it's being used in desktop mode?  As far as I, and most people, can tell, Windows 8 can be used on laptops and desktops, the same way as Windows 7.  You don't have to use the new GUI methods if you want to continue using it the same as in Windows 7.  In fact, I hardly ever see anything but the "desktop" screen and desktop applications.

IOW, I can't see what the heck you're complaining about.  

adornoe
adornoe

@iswayn I've been real, but apparently, the truth is very unfamiliar to you.  

adornoe
adornoe

@JamesAltonSanders @adornoe I remember reading the Macs vs Windows figures some 2 years ago, and your numbers might be from the old studies.  Mas too, have recently met with stiff resistance, and their numbers have also declined.  

My comments were not meant to compare Macs vs PCs.  That's an entirely different topic, and an entirely different study.  My point was about how the installed base of Windows is not shrinking, while the bloggers and authors of tech articles continue missing the point that, shrinking PC sales does not equate to people giving up on PCs.  In fact, there are still more PCs being sold than tablets, by far.  So, instead of the "post-PC" mantra, perhaps the writers and authors of tech articles should be talking about the "tablet takeover not even close to reality".. 


adornoe
adornoe

@WhoRUKiddin @adornoe There is no doubt in my mind that you are exaggerating when it comes to Windows 8/8.1 machines being converted to any from of Liinux.  The vast majority of people are NOT going to ask that any version of Windows be replaced by Linux.  Most people aren't hat savvy, and most people will not be going with an OS that is always in catch-up mode against Windows.  And, it doesn't matter what price they paid for their Windows machine.  Windows machines have always been put up for sale on eBay and other sites, and even shortly after purchase; that means nothing.  

My point, and one that went over your head, is that, the installed share of Windows is not declining, and could actually be going up.  Also, Windows 8/81. adoption at this point in its life, is about equivalent to the adoption of Windows 7 at about the same time after it was released.  That's according to several reports.   

JamesAltonSanders
JamesAltonSanders

@adornoe @JamesAltonSandersYou're right, it's a completely different topic, but the Mac numbers I'm quoting are a comparison of last month to Q4 2010, and those numbers haven't declined. 

I'm with you on the classification problem, though. There is something of a rush to reclassify tablets as computers to make Apple look like the world's largest PC vendor, and that rush is probably being made by people with a vested interest in that perception. Tablets aren't PCs, and this rush to obfuscate the distinction between the two is a disservice.

But, as percentages - and you're right that percentages aren't an indicator of the quantity of deployed systems - Windows 8 is not growing at the rate that Windows 7 was, and I think the case could be made that it isn't growing at the rate Vista did, and Vista was far from warmly received. Microsoft has a continuing problem with this, because they're really hit or miss for about every other major version: 7 was good, Vista wasn't, XP was good, Me wasn't, 98SE was good... etc.

Ultimately, I think the big takeaway from my article should be that "perhaps the toughest challenge any company can face is when their biggest competitor is their own back catalogue" - and Microsoft's spotty history with major Windows revisions isn't really new ground. 

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