Acer – Point of capitulation?

Capitulation often marks the bottom of the market.

• Acer has reported another set of rotten results and at the same time seems to be throwing in the towel on Windows 8.
• Acer looks to be prioritising products using Chrome and Android which it expects to grow 30% to become 10-12% of revenues in 2014.
• Acer along with HPQ and Dell are the underdogs in the PC market lacking the R&D capability to deliver innovative hardware form factors to take advantage of the touch capability of Windows 8.
• This is what I believe has led Acer to look to Android and Chrome to bail it out of its current predicament.
• The market for tablets is still growing very quickly with Q2 showing 80% YoY growth to 45m units.
• However, the QoQ story is more sanguine with -4.3% QoQ growth in Q1 13 and -8.4% QoQ growth in Q 13.
• This is a sign that the PC market may be about to bottom (see below).
• This market can be carved into three pieces: iPad, Samsung and the cheap and cheerful segment.
• Of Android tablets Samsung commands 26.5% share with other players (cheap and cheerful white label) taking 49%.
• Acer managed to win just 4.5% of the market in Q2 13.
• The message in Android is very clear: branded tablet buyers buy Samsung and everyone else buys the cheapest tablet they can find.
• This leaves Acer with the prospect of competing against the white box tablet makers which history has shown is a license to lose money.
• Hence I think that Acer has come much too late to this market and as such Android and Chrome devices are not going to pull it out of its current nosedive.
• The interesting point to note that when the laggards in a market throw in the towel, it often marks the bottom.
• Slowing iPad and Samsung tablet growth over the last 2 quarters is pointing to the beginnings of saturation in the top half of the market.
• This leads me to believe that most casual PC users (who can just as easily use a tablet) have now given up their computers.
• This has been a major factor in the weakness of the PC market and I am hopeful that this transition is reaching an end.
• This would mark the bottom of the PC market’s recent decline.
• Both Microsoft and Asustek have suffered badly at the hands of the PC market and its stabilisation could cause a spike in sentiment.
• Acer, HPQ and Dell look set to continue suffering but I am looking at Microsoft and Asustek as a way to play the stabilisation story.