Acer CEO Ousted as Tablets Cannabilize Laptops

TAIPEI, March 31 (Reuters) – Taiwan’s Acer , the world’s No. 2 PC vendor, replaced its chief executive in a surprise move on Thursday, barely a week after it gave a downbeat outlook that wiped more than $1 billion off its market value in four days.

Its Italian chief executive, Gianfranco Lanci, will leave the company immediately due to differences over the strategy needed to counter the runaway success of the tablet market, which has cannibalized Acer’s profits.

Chairman J.T. Wang taking over in an acting capacity, Acer said in a statement.

Acer, one of Taiwan’s best-known brands, has been a dominant force in the PC business, particularly in the low-cost notebook segment. It said it will now focus on the tablet sector as well, an area where it has been slow in gaining traction against rival products such as Apple’s hot-selling iPad.

"The industry has changed too much, that’s why our successful formula in the past has to be adjusted," Wang told a news conference announcing the change.

"We will not keep talking about being the world’s No.1 notebook maker anymore. Rather we need to a leader in mobile devices. We’ll pursue brand value and profit and then we’ll talk about quantity."

Acer launched its new tablet PC, the Iconia Tab, in February and the company said last week that new tablet models scheduled to launch in the second quarter may improve sales. Earlier this year, it said it aimed to sell 6 million tablets in 2011.

SKEPTICAL MARKET

Analysts said Acer would face a tough road ahead in trying to make inroad into the hotly contested sector.

"The management change shows that Acer is taking responsibility in what has happened recently, but whether it is positive to the company in the long run will depend on who takes over as the CEO and the measures he is going to take," said Bevan Yeh, a senior fund manager of Prudential Financial Securities Investment Trust.

"Acer does not have an edge in the tablet market. That’s why the market did not respond positively to its bet on mobile devices as the growth momentum in the second half of the year."

Acer’s operating margin in the first quarter will drop to 0.5-1.5 percent from a 2.8-3 percent range in the previous six quarters because of inventory issues, according to an analyst who attended an Acer briefing.

The surprise news of Lanci’s departure came after shares of Acer plunged almost 18 percent in the four days since it said first-quarter sales would be worse than expected and second quarter sales would be flat, triggering a wave of analyst downgrades.

In January, Acer reported fourth-quarter profit below expectations, affected by unfavorable weather and economic conditions in Europe.

Citi raised concern about the company’s continued failure to meet its own guidance, calling Acer the biggest victim of the tablet cannibalisation of the consumer notebook.

A source with knowledge of the matter said tension between Wang and Lanci have been rising for some time.

"It is a very high profile dispute which led to much indecision in the end. One big dispute included investment amount in tablet PCs, another big one was that Acer had actually approached NEC to acquire its PC business ahead of Lenovo , but NEC went with Lenovo in the end," the source said.

Lanci joined Acer in 1997 after it took over the notebook division of Texas Instruments , for whom Lanci worked at the time. He became CEO in 2008 and has been credited with helping Acer make it to the world’s No.2 spot through a focus on low-cost laptops.

Apart from steering Acer towards the new strategy, any new CEO will face management challenges in its global operations.

"Gianfranco built the entire Acer empire in Europe, so most of the people were hired there. So how the new CEO manages those people will be quite a challenge," said a technology analyst in Hong Kong who declined to be identified. (Additional reporting by Lee Chyen Yee; Editing by Matt Driskill and Lincoln Feast)