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Acer Incorporated

Acer Incorporated

9F, 88 Hsin Tai Wu Rd., Sec 1
Hsichih, Taipei 221
Taiwan
Telephone: 886-2-696-1234
Fax: 888-2-696-3535
Web site: http://www.acer.com

Public Company
Incorporated: 1976 as Multitech International
Employees: 6,560
Sales: $7.03 billion (2004)
Stock Exchanges: Taiwan
Ticker Symbol: ACER
NAIC: 334111 Electronic Computer Manufacturing; 334613 Magnetic and Optical Recording Media Manufacturing; 334290 Other Communications Equipment Manufacturing; 334119 Other Computer Peripheral Equipment Manufacturing; 334310 Audio and Video Equipment Manufacturing; 511210 Software Publishers

Acer Incorporated is Taiwan's leading exporter and the world's fifth largest computer manufacturer. The company designs, manufactures, and sells computer hardware and software products; it ranks among the world's largest manufacturers of individual components such as keyboards, motherboards, set-up boxes, storage drives, monitors, CD-ROM drives, keyboards, printers, scanners, and software. Acer's nearly 30 years of growth results primarily from its business of manufacturing and assembling branded and contract PCs in several locations throughout the world. The company sells its products through dealers and distributors in more than 100 countries.

Taiwan's high-tech industry pioneer Stan Shih cofounded Acer. Over the years Shih guided his company through several corporate restructuring processes as well as financial ups and downs of the 1980s and 90s. In a significant restructuring in 2000 Acer spun off its lucrative contract manufacturing business and renamed it Wistron Corporation. This helped position Acer on a growth curve in several markets. When Stan Shih retired in early 2005 Acer's branded products had strong sales figures worldwide, and the company was poised to make a larger impact in the U.S. market through its desktop and notebook PCs.

Business Origins

Acer's founder was born Shih Chen Jung in 1945. A shy youth, Shih blossomed at National Chiao Tung University, where his natural math aptitude helped him graduate at the top of his class. Shih, who later westernized his given name to Stan, earned a master's degree in 1972 and went to work as a design engineer at Qualitron Industrial Corp.

It was not long, however, before the entrepreneurial bug bit Shih; in 1976, he and several friends founded Multitech International with a $25,000 initial investment. The new firm started by designing hand-held electronic games, then expanded into the distribution of imported semiconductors. Shih renamed his company Acer Incorporated in 1981. The name was derived from the Latin word for acute or sharp.

The company enjoyed its first international success that year with the launch of MicroProfessor, a teaching tool. The company began manufacturing PC clonescomputers and components that were sold to larger companies with strong brand namesin 1983. Acer diversified vertically in the late 1980s, soon becoming "one of the most vertically integrated micro-computer manufacturers in the world," according to Los Angeles Business Journal.

In 1995, Fortune 's Louis Kraar called Stan Shih "a fascinating combination of engineering nerd, traditional Chinese businessman, avant-garde manager, and international entrepreneur, with an outsize ambition and vision to match." The young CEO applied all of these talents to his young enterprise. In stark contrast to the micromanagement, nepotism, and profit-taking typical of Taiwanese companies, Shih established a modern, progressive corporate culture. Although Shih's wife, Carolyn Yeh, served as the company's first bookkeeper, the founder vowed that his three children would have to look for jobs elsewhere. Time clocks were anathema, even in production plants. In 1984 he established Taiwan's first stock incentive program. Within four years, 3,000 of Acer's employees were also stockholders.

In 1981, Acer hinted at a sweeping change in strategy with the establishment of Third Wave Publishing Corp. The term "third wave" referred to the most recent phase of the history of Taiwan's computer industry: the first was characterized by trademark and patent piracy, the second by clonemaking, and the third by technological innovation. Instead of simply churning out other companies' designs, Acer began to set itself apart from most of its Taiwanese competitors by doing its own research and development. For example, the company developed one of the world's first Chinese language computer systems. In 1986, Acer was second only to Compaq to introduce a 32-bit PC with an Intel 386 microprocessor.

Acer went public in 1988, having chalked up average annual growth of 100 percent from 1976 to 1988. In 1988, net profits totaled more than $25 million.

Early 1990s Setbacks

The late 1980s brought internal and external changes that had a devastating effect on Acer. The internal problems were completely unexpected. In 1989, Shih hired Leonard Liu away from a 20-year career with International Business Machines Corp. (IBM), making him president of the Acer group and chairman and chief executive officer of Acer America Corp. Described in an October 1995 Fortune article as "a cerebral Ph.D. in computer science from Princeton," Liu had previously been the "highest-ranking Chinese American executive" at IBM. Liu's managerial style reflected his experience at "Big Blue": in contrast with Shih's traditionally progressive corporate culture, Liu tried to centralize control of Acer. His offputting approach has been blamed for a management exodus in the early 1990s.

At the same time, the computer industry quickly matured, shifting from a high profit margin business to a low margin commodity practically overnight. Price wars pushed component prices down so rapidly, and a strong New Taiwan dollar made the country's goods so expensive, that it became difficult to make a profit on the finished product.

Acer's sales rose from $530.9 million in 1988 to $977 million by 1990, but its profits dropped from $26.5 million to $3.6 million during the same period. In 1991, Acer posted its first ever annual loss, $22.7 million. More than $20 million of that shortfall came from Acer America, which had struggled since its inception. Acer's stock dropped to 50 percent of its initial public offering price. Shih had to sell Acer's headquarters to make a profit in 1992.

These difficulties, however, did not deter Shih from making several expensive, and oft-criticized, expenditures during the late 1980s and early 1990s. In 1989, Acer invested $240 million in a joint venture with Texas Instruments and China Development Corporation, a Taiwanese development bank. The cooperative enterprise built Taiwan's first DRAM (dynamic random access memory) factory. Half of its output was sold to Acer, and the other half was sold on the world market. Some industry observers ballyhooed the project, noting a glut in the global DRAM market. Acer also expanded production capacity at its main plant, spent $36 million on a global marketing campaign, and made questionable acquisitions in the United States and Germany. Financial World 's Jagannath Dubashi was skeptical that the company's investments would pay off, noting in her July 1991 coverage of the company that "this new aggressiveness seems both poorly timed and unrealistic." She even characterized the company's bold moves as "a desperate gamble."

At the time, Shih would have been the first to agree with such an assessment. In January 1992, he offered to resign from the company he had founded. Acer's board of directors turned down Shih's resignation, but accepted Leonard Liu's withdrawal three months later. By mid-year, Shih had resumed dayto-day administration of Acer and its American subsidiary.

Instead of being cowed by the setback, Shih was determined to cement Acer's future in the PC industry by transforming it from just another OEM into one of the world's leading computer brands. He would achieve this goal via several revolutionary strategies.

New Methods Pace Mid-1990s Turnaround

In a 1995 Financial World article, Shih compared Taiwanese computer manufacturing to Chinese restaurants, saying that "Chinese food is good, and it is everywhere, but it has no uniform global image or consistent quality." The same was true of personal computers; although most were made in Taiwan, they were sold under several (primarily American and Japanese) brands, with varying levels of quality. Shih wanted Acer to be more like McDonald's, the quintessential fast food restaurant that boasted a strong brand image and strict quality standards.

This unique paradigm shift required a complete overhaul of Acer's production and distribution scheme. Instead of assembling computers in Taiwan, as it had done for more than a decade, the company began to ship components to 32 locations around the world for assembly. Shih compared computer components including casings, keyboards, and mice to such staples as ketchup and mustard that could be shipped slowly and stored indefinitely. He likened the motherboard, which had to have the "freshest" technology possible, to the meat in a sandwich. It was shipped by air from Taiwan to each assembly operation. Finally, Shih compared the CPU and hard drive to "very expensive cheese: we try to source them locally." Shih's adoption of this unique strategy earned him the nickname "the Ray Kroc of the PC business."

Company Perspectives:

Acer ranks among the world's top five branded PC vendors, designing and marketing easy, dependable IT solutions that empower people to reach their goals and enhance their lives.

This production scheme saved on shipping costs and enabled Acer to include the most up-to-date (Shih liked to call it the "freshest") technology available. In Acer-speak, "fresh" meant innovative. Not content to rely on low-end knockoffs of other companies' technology, Acer stayed abreast of the industry's latest developments. In 1992, it launched a multi-user UNIX system as well as 386- and 486-based PCs. That year also saw the introduction of an international service and support network, a vital element of any successful PC business in the 1990s. In 1993, Acer unveiled a new PC that came equipped with a RISC (reduced instruction-set computing) chip and Microsoft's most recent version of the Windows operating system.

Shih hoped to bring the "fast food" concept all the way to the retail level, so that customers could custom-order computers with peripherals and memory capacity specifically suited to their needs. Acer tested this concept at a company-owned retail store in Taipei. It seemed to be as close as Acer could come to McDonald's-style service: only two hours passed from the time a system was ordered to the time it was booted.

Shih's "global brand, local touch" strategy was closely related to the "fast food" distribution concept. Instead of creating a series of centrally controlled foreign subsidiaries, Acer established a network of virtually autonomous affiliates, much like a fast food franchise system. Each of these affiliates was managed by a group of locals who determined product configurations, pricing strategies, and promotional programs based on national or regional preferences. The affiliate would usually have just one Taiwanese person on staff to facilitate interorganizational communications. Sales & Marketing Management characterized the system as a "revolutionary departure from the traditional hierarchical model of worldwide branches and subsidiaries reporting to a head office." Instead, it was "a commonwealth of independent companies, united only in their commitment to a common brand name and logo."

This strategy gave each Acer affiliate the semblance of a local company, an image that carried with it several benefits. Perhaps most important, it helped to downplay Acer's Taiwanese roots. Despite the country's large strides in the area of quality, "made in Taiwan" continued to carry negative connotations in the minds of many consumers. While Shih was proud of his company's heritage, individual affiliates often found it efficacious to de-emphasize that aspect of the business.

Globalization at Acer employed a third strategy adapted from an Asian chess-like game called "Go." Instead of jumping directly into the world's largest and most important computer markets, Acer conquered the surrounding markets before entering the United States. For example, Acer established itself as the leader in less hotly contested markets in Latin America, Southeast Asia, and the Middle East. By 1995, it was the topselling computer brand in Mexico, Bolivia, Chile, Panama, Uruguay, Thailand, and the Philippines, not to mention Taiwan.

This combination of tactics worked quickly and well, vindicating many of Acer's previously criticized moves. In 1993, Acer posted record profits of $75 million; 43 percent of that year's net was generated by the DRAM joint venture, considered "the most efficient in the DRAM industry" by some observers. From 1994 to 1995, Acer advanced from 14th to ninth among the world's largest computer manufacturers, surpassing Hewlett-Packard, Dell, and Toshiba. Total sales grew to $3.2 billion in 1994, and net income increased to $205 million, as Acer America turned its first annual profit in the 1990s.

Strategies for the Mid-1990s and Beyond

In the mid-1990s, Acer began to globalize production as well as assembly, building a keyboard and monitor plant in Malaysia in 1994. The company planned a motherboard and CD-ROM factory for the Philippines and hoped to set up production in Argentina, Chile, Thailand, Dubai, South Africa, Brazil, India, the People's Republic of China, and the former Soviet Union.

In 1994, Shih unveiled a plan to "deconstruct" Acer into 21 publicly traded business units by the end of the 20th century. Acer Inc. would continue to own anywhere from 19 percent to 40 percent of the firms' stock, but Shih hoped that their independent status would enable the individual units to compete more effectively by facilitating entrepreneurship, inspiring research and development, and allowing for corporate fundraising through stock and bond offerings. Michael Zimmerman of PC Week speculated on another possible motivation behind the plan, known internally as "21-in-21." His June 1994 piece on Acer noted that "Separating the divisions will also clear a path for Shih to retire and, as one observer said, 'to leave his legacy intact' by not risking the future of his brainchild to a successor." In fact, Shih told PC Week that he "expects to withdraw from Acer and the workforce" by 1999.

Acer Computer International, the company's Asia-Pacific distributor, had its initial public offering in September 1994. The approximately $55 million flotation was oversubscribed by about 20 times. Spinoffs of Acer Peripherals, the corporation's manufacturer of keyboards and monitors, and Acer Sertek, the Taiwanese distribution operation, were planned for 1996. Stock in Acer America and certain Latin American operations was slated to go on the auction block by 1997.

Key Dates:

1976:
Multitech International is founded by Stan Shih and four others.
1981:
Multitech is renamed Acer, Inc.
1983:
Acer begins manufacturing PC clones.
1988:
Acer Incorporated goes public.
1991:
Acer posts its first loss.
1994:
Acer Computer International (Asia-Pacific distributor) completes its initial public offering (IPO).
1995:
Acer is top selling PC brand in Mexico, Bolivia, Chile, Panama, Uruguay, Thailand, Philippines, and Taiwan.
1996:
Acer expands into consumer electronics.
1998:
Company reorganizes into five units.
2000:
Acer restructures, breaking off several operating units; contract manufacturing spins off to become Wistron Corporation.
2003:
Acer becomes the world's fifth largest PC maker.
2005:
Stan Shih retires; J.T. Wang is named CEO and Gianfranco Lanci becomes president.

The Economist reported that Acer's revenues had increased by 75 percent from $3.2 billion in 1994 to $5.7 billion and that Shih hoped to increase that figure to $15 billion by 1999 via expansion into consumer electronics including televisions and fax machines. Global sales did strengthen, but Acer's performance lagged in the U.S. market due to intense competition from rivals with stronger brand presence.

Acer America was reorganized in both 1996 and 1997 in an attempt to stem the tide of loss. In 1997 Acer America lost $141 million. This had a significant impact on the company's bottom line because at the time, one third of Acer Inc.'s business was in North America. Its branded PCs were ranked ninth in sales in the U.S. PC market. That same year Acer America purchased Texas Instruments' notebook sector.

On a global scale, Acer was seeing a turnaround; its net profits in 1997 were $115 million, up 22 percent from the previous year. That year Acer negotiated significant partnerships with IBM and Apple to manufacture PCs. At the time it had 37 assembly sites worldwide, but no manufacturing outside of Asia. Later that year the company opened its first manufacturing plants outside of Asia, in Mexico, in order to reduce shipping time to the Latin and North American markets. By late 1998 Acer was the top brand in South Africa, Mexico, and several other emerging markets.

While Acer had successfully concentrated its efforts on emerging markets, corporate leaders were still dissatisfied with its weak showing in the United States and Europe. In the United States, Acer's share of the PC market slipped from 5.4 percent of PC sales in 1995 to 3.2 percent in late 1998. In an effort to recoup some of that market share, Acer America planned to streamline efforts toward less complicated systems targeted toward schools, governments, and businesses.

In 1998 Acer reorganized into five groupsAcer International Service Group, Acer Sertek Service Group, Acer Semiconductor Group, Acer Information Products Group, and Acer Peripherals Group. Two years later that corporate restructuring did not appear to have made a significant impact on the company overall, and stock prices were sliding. Shih restructured again. To dispel complaints from clients that Acer competed with its own products and to alleviate the competitive nature of the branded sales vs. contract manufacturing businesses, Shih spun off the contract business, renaming it Wistron Corporation. The restructuring resulted in two primary unitsbrand name sales and contract manufacturing. The restructuring also resulted in Acer breaking off several of its smaller operations, including semiconductor design, consumer electronics, and liquid-crystal displays.

Early signs indicated that the spinoff strategy had worked well, especially in Europe, where Acer became a popular PC brand. In 2003, company sales increased 48 percent to $4.6 billion, and helped Acer surpass Japan's Toshiba and NEC, making it the world's fifth largest manufacturer of PCs.

Acer had also adopted a more focused "channel" approach to distribution. Instead of a multi-tiered strategy, the company simplified the sales/distribution process by eliminating direct sales, and fostering closer working relationships with dealers and distributors. Acer also focused on selling to corporations through distributors rather than trying to win the sales from individual consumers.

The restructuring, combined with the 100 percent focused channel strategy, increased Acer's success in the European markets. Acer applied the same channel strategy in the United States, where sales figures eventually began to turn aroundso much so that Acer America was on track to break even by the end of 2004. Acer America had also worked hard to reinforce product support services since early 2000.

By late 2004, the industry rankings were in Acer's favor. In Europe Acer was number two in PC brand sales in the second quarter of 2004. In the third quarter, Acer was the top PC notebook brand in Italy and Germany, the region's biggest PC markets. Acer had also climbed to number three in PC shipment volume to the entire pan-European market which included the Middle East and Africa.

Gianfranco Lanci, who had overseen and orchestrated Acer's success in Italy and then throughout Europe, began managing the U.S. market operations. Lanci became Acer president, and president J.T. Wang was promoted to CEO, while Stan Shih planned to retire. After putting it off for several years, Shih finally announced his upcoming retirement, sensing his company was in good hands and positioned for continued growth.

Forecasting into 2005, the company anticipated its global revenue would increase by 30 to 40 percent. Acer leaders hoped to become the world's third largest PC maker by surpassing Fujitsu Siemens Computers and IBM. To reach that goal, Acer planned to further expand desktop market penetration. At the time notebook PC sales represented 58 percent of Acer's earnings. Comfortable with its leading presence in Asia and Europe, the company was ready to position itself to increase sales in China and North America, turning up the competitive heat on rivals Dell and Hewlett Packard.

Principal Subsidiaries

Acer Computer International; Acer Information Products Group; Acer Internet Services; Acer NeWeb Corp.; Acer Peripherals, Inc.; Acer Property Development, Inc.; Acer Semiconductor Manufacturing; Addonics Technologies Corp. Aegis Semiconductor Technology; Aopen, Inc.; Acer Technology, Inc.; Darfon Electronics Corporation; Hitrust Incorporated; Vision Tech Information Technology; Weblink International, Inc.; Wistron Nexus Inc.; Acer America Corporation (U.S.A.); Acer Latin America, Inc.; Acer Peripherals America, Inc.; Acer Africa Pty. Ltd.; Acer America Corp. (Canada); Acer CIS, Inc. (Russia); Acer Computec Latino America S.A. (Mexico); Acer Computer Australia Pty. Ltd.; Acer Computer Benelux (Netherlands); Acer Computer Co., Ltd. (Thailand); Acer Computer Czech and Slovak Republics; Acer Computer (Far East) Limited (Hong Kong); Acer Computer Finland Oy; Acer Computer France S.A.R.L.; Acer Computer GmbH (Germany and Poland); Acer Computer Handels gmbH (Austria); Acer Computer Iberica S.A.U. (Spain); Acer Computer (Singapore) Pte. Ltd.; Acer Computer Magyarorsz-g (Hungary); Acer Computer (M.E.) Ltd. (United Arab Emirates); Acer Computer New Zealand Ltd.; Acer Computer Norway A/S; Acer Computer Sweden AB; Acer Computer (Switzerland) AG; Acer Computer Turkey; Acer do Brasil Limitada; Acer India (Pvt.) Ltd.; Acer Information Services International (Costa Rica); Acer Italy S.r.l.; Acer Japan Corporation; Acer Marketing Services (China); BenQ (formerly Acer Peripherals Holland) (Netherlands); Acer Peripherals Japan; Acer Peru S.A.; Acer Philippines, Inc.; Acer Sales and Service Sdn.Bhd. (Malaysia); Acer Scandinavia A/S (Denmark); Acer UK Limited; Acer Vietnam Co. Ltd.; ONC Technologies Inc. (South Korea); PT Acer Indonesia; Servex Singapore Pte. Ltd.

Principal Competitors

Dell Inc.; Fujitsu Siemens Computers (Holding); Hewlett-Packard Company; NEC Corporation.

Further Reading

"Acer Chairman to Retire," Asia Pacific Telecom, October 2004, p. 19.

"The Acer Group," Los Angeles Business Journal, September 2, 1991, p. S10.

"Acer Ranked No. 3 in Pan-Europe Computer Market in 3Q," Asia Africa Intelligence Wire, October 26, 2004.

"Acer Reorganizes into Five Units," Computer Dealer News, August 17, 1998, p. 8.

"Bits and Bytes," Economist, March 9, 1996, p. S20.

Brennan, Laura, "High-Tech Union Shatters Merger Myth: Acer, Altos Upbeat on Profits, Channels," PC Week, March 4, 1991, p. 123.

Burke, Steven, "Acer on the Move," Computer Reseller News, November 8, 2004, p. 31.

"Business Briefs: Acer Slims Down," Infoworld, December 18, 2000, p. 16.

Carlton, Jim, "Compaq and Acer Are Slashing Prices on Entry-Level PCs to Expand Market," Wall Street Journal, November 17, 1995, p. A3.

Chong, Lim, "Ace of Acer," New Straits Times (Malaysia), December 18, 2003.

"Computer Giant Acer Forecasts Bright 2005," Newsday.com, November 10, 2004.

DiCarlo, Lisa, "Acer to Expand Beyond PCs," PC Week, April 22, 1996, p. 125.

Dubashi, Jagannath, "The Dragon's Curse: Why Taiwan's $1 Billion Acer Group Is Betting the Store on PCs," Financial World, July 23, 1991, p. 46.

Einhorn, Bruce, "Acer: How Far Can It Ride This Hot Streak?" Business Week, May 17, 2004, p. 52.

, "For Acer, a Bad Year Turns Brutal," Businessweek Online, January 15, 2001.

Engardio, Pete, "For Acer, Breaking Up Is Smart to Do," Business Week, July 4, 1994, p. 82.

Engardio, Pete, and Neil Gross, "Acer: Up from Clonesand Then Some," Business Week, June 28, 1993, p. 54.

Hamm, Steve, "Ace in the Hole," PC Week, June 13, 1994, p. A1.

"High-Tech Union Shatters Merger Myth: Acer, Altos Upbeat on Profits, Channels," PC Week, March 4, 1991, p. 123.

Huang, Charlene, "Acer Group Plans Major Leap in PC Market," Electronics, January 23, 1995, p. 13.

"Inferiority Complex," Economist, February 1, 1992, p. 78.

Kovar, Joseph F., "Acer's Channel Strategy Pays Off," Computer Reseller News, November 8, 2004, p. 6.

Kraar, Louis, "Acer's Edge: PCs to Go," Fortune, October 30, 1995, p. 186.

Kunert, Paul, "Can Acer Play Another Ace?" Microscope, August 23, 2004, p. 1.

Lazlo, J.J., "Electronics Industry 1995 Far East Review," PaineWebber Inc., January 2, 1996.

Mantel, Kimberly, and Carol Wei, "The Datamation 100: Acer Inc.," Datamation, September 1, 1992, p. 89.

Moore, Jonathan, "Stan Shih's Moment of Truth at Acer," Business Week, October 12, 1998.

Moore, Jonathan, Peter Burrows, and Joan Oleck, "Acer Scales Back Its Aspirations," Business Week, October 26, 1998, p. 8.

Morris, Kathleen, "The Disintegration Model," Financial World, June 20, 1995, p. 32.

Shapiro, Don, "Ronald McDonald, Meet Stan Shih," Sales & Marketing Management, November 1995, p. 85.

"Stan Shih, Acer," Computer Reseller News, June 7, 2004, p. 62.

"Stan Shih: Setting the Standard; Chairman, Acer, Inc., Taiwan," Business Week, July 12, 2004, p. 62.

Tanzer, Andrew, "The Great Leap Forward," Forbes, April 15, 1991, p. 108.

, "Made in Taiwan," Forbes, February 26, 1996, p. 134.

"TI Enters Taiwan Venture to Make DRAMs," Electronic News, May 15, 1989, p. 1.

Whelan, Carolyn, "Why Acer Lags in the U.S.," Electronic News (North America), June 29, 1998, p. 1.

Whiting, Rick, "Getting Acer Back on Track," Electronic Business, February 1993, p. 76.

Zimmerman, Michael R., "Acer to Divest into 21 Public Businesses: Growth Plan to Be Complete by Year 2000," PC Week, June 20, 1994, p. 109.

April Dougal Gasbarre

update: Susan B. Culligan

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Acer Inc.

Acer Inc.

6F, 156 Min Sheng E. Road Sec.3
Taipei 105 R.O.C.
Taiwan
(886) 2-545-5288
Fax: (886) 2-545-5308

Public Company
Incorporated:
1976
Employees: 11,000
Sales: NT $63.02 billion (US $3.2 billion) (1994)
Stock Exchanges: Taiwan
SICs: 3571 Electronic Computers: 3577 Computer Peripheral Equipment, Not Elsewhere Classified

Called the regions most impressive technology company in a 1996 article in The Economist, Acer Inc. is Taiwans leading exporter and the worlds seventh-largest personal computer brand. The company also ranks among the worlds ten biggest manufacturers of individual components like keyboards, monitors, and CD-ROM drives, and is Americas ninth-largest personal computer producer. By 1995, the company was producing four million PCs annually, 25 percent of them OEMs (products sold under other companies labels). Under the guidance of Chairman and CEO Stan Shih, Acer used groundbreaking strategies to bounce back from a US $22.7 million loss in 1991, earning US $205 million on sales of US $3.2 billion in 1994. Shih hoped to increase Acers global sales to US $15 billion by 1999, by which time the company would operate as a federation of local manufacturing, assembly, and marketing units.

Business Origins

Acers founder was born Shih Chen Jung in 1945. A shy youth, Shih blossomed at National Chiao Tung University, where his natural math aptitude helped him graduate at the top of his class. Shih, who later westernized his given name to Stan, earned a masters degree in 1972 and went to work as a design engineer at Qualitron Industrial Corp.

It was not long, however, before the entrepreneurial bug bit Shih; in 1976, he and several friends founded Multitech International with a $25,000 initial investment. The new firm started by designing hand-held electronic games, then expanded into the distribution of imported semiconductors. Shih renamed his company Acer Inc. in 1981. The name was derived from the Latin word for acute or sharp.

The company enjoyed its first international success that year with the launch of MicroProfessor, a teaching tool. The company began manufacturing PC clonescomputers and components that were sold to larger companies with strong brand namesin 1983. Acer diversified vertically in the late 1980s, soon becoming one of the most vertically integrated microcomputer manufacturers in the world, according to Los Angeles Business Journal.

In 1995, Fortunes Louis Kraar called Stan Shih a fascinating combination of engineering nerd, traditional Chinese businessman, avant-garde manager, and international entrepreneur, with an outsize ambition and vision to match. The young CEO applied all of these talents to his young enterprise. In stark contrast to the micromanagement, nepotism, and profit-taking typical of Taiwanese companies, Shih established a modern, progressive corporate culture. Although Shihs wife, Carolyn Yeh, served as the companys first bookkeeper, the founder vowed that his three children would have to look for jobs elsewhere. Time clocks were anathema, even in production plants. In 1984 he established Taiwans first stock incentive program. Within four years, 3,000 of Acers employees were also stockholders.

In 1981, Acer hinted at a sweeping change in strategy with the establishment of Third Wave Publishing Corp. The termthird wave referred to the most recent phase of the history of Taiwans computer industry: the first was characterized by trademark and patent piracy, the second by clonemaking, and the third by technological innovation. Instead of simply churning out other companies designs, Acer began to set itself apart from most of its Taiwanese competitors by doing its own research and development. For example, the company developed one of the worlds first Chinese language computer systems. In 1986, Acer was second only to Compaq to introduce a 32-bit PC with an Intel 386 microprocessor.

Acer went public in 1988, having chalked up average annual growth of 100 percent from 1976 to 1988. In 1988, net profits totaled more than US $25 million.

Early 1990s Setbacks

The late 1980s brought internal and external changes that had a devastating effect on Acer. The internal problems were completely unexpected. In 1989, Shih hired Leonard Liu away from a 20-year career with International Business Machines Corp. (IBM), making him president of the Acer group and chairman and chief executive officer of Acer America Corp. Described in an October 1995 Fortune article as a cerebral Ph.D. in computer science from Princeton, Liu had previously been the highest-ranking Chinese American executive at IBM. Lius managerial style reflected his experience at Big Blue: in contrast with Shihs traditionally progressive corporate culture, Liu tried to centralize control of Acer. His off-putting approach has been blamed for a management exodus in the early 1990s.

At the same time, the computer industry quickly matured, shifting from a high profit margin business to a low margin commodity practically overnight. Price wars pushed component prices down so rapidly, and a strong New Taiwan dollar made the countrys goods so expensive, that it became difficult to make a profit on the finished product.

Acers sales rose from US $530.9 million in 1988 to US $977 million by 1990, but its profits dropped from US $26.5 million to US $3.6 million during the same period. In 1991, Acer posted its first ever annual loss, US $22.7 million. More than US $20 million of that shortfall came from Acer America, which had struggled since its inception. Acers stock dropped to 50 percent of its initial public offering price. Shih had to sell Acers headquarters to make a profit in 1992.

These difficulties, however, did not deter Shih from making several expensive, and oft-criticized, expenditures during the late 1980s and early 1990s. In 1989, Acer invested US $240 million in a joint venture with Texas Instruments and China Development Corporation, a Taiwanese development bank. The cooperative enterprise built Taiwans first DRAM (dynamic random access memory) factory. Half of its output was sold to Acer, and the other half was sold on the world market. Some industry observers ballyhooed the project, noting a glut in the global DRAM market. Acer also expanded production capacity at its main plant, spent US $36 million on a global marketing campaign, and made questionable acquisitions in the United States and Germany. Financial Worlds Jagannath Dubashi was skeptical that the companys investments would pay off, noting in her July 1991 coverage of the company that this new aggressiveness seems both poorly timed and unrealistic. She even characterized the companys bold moves as a desperate gamble.

At the time, Shih would have been the first to agree with such an assessment. In January 1992, he offered to resign from the company he had founded. Acers board of directors turned down Shihs resignation, but accepted Leonard Lius withdrawal three months later. By mid-year, Shih had resumed day-to-day administration of Acer and its American subsidiary.

Instead of being cowed by the setback, Shih was determined to cement Acers future in the PC industry by transforming it from just another OEM into one of the worlds leading computer brands. He would achieve this goal via several revolutionary strategies.

New Methods Pace Mid-1990s Turnaround

In a 1995 Financial World article, Shih compared Taiwanese computer manufacturing to Chinese restaurants, saying that Chinese food is good, and it is everywhere, but it has no uniform global image or consistent quality. The same was true of personal computers; although most were made in Taiwan, they were sold under several (primarily American and Japanese) brands, with varying levels of quality. Shih wanted Acer to be more like McDonalds, the quintessential fast food restaurant that boasted a strong brand image and strict quality standards.

This unique paradigm shift required a complete overhaul of Acers production and distribution scheme. Instead of assembling computers in Taiwan, as it had done for more than a decade, the company began to ship components to 32 locations around the world for assembly. Shih compared computer components like casings, keyboards, and mice to staples like ketchup and mustard that could be shipped slowly and stored indefinitely. He likened the motherboard, which had to have the freshest technology possible, to the meat in a sandwich. It was shipped by air from Taiwan to each assembly operation. And finally, Shih compared the CPU and hard drive to very expensive cheese: we try to source them locally. Shihs adoption of this unique strategy earned him the nickname the Ray Kroc of the PC business.

This production scheme saved on shipping costs and enabled Acer to include the most up-to-date (Shih liked to call it the freshest) technology available. In Acer-speak, fresh meant innovative. Not content to rely on low-end knockoffs of other companies technology, Acer stayed abreast of the industrys latest developments. In 1992, it launched a multi-user UNIX system as well as 386- and 4865x-based PCs. That year also saw the introduction of an international service and support network, a vital element of any successful PC business in the 1990s. In 1993, Acer unveiled a new PC that came equipped with a RISC (reduced instruction-set computing) chip and Microsoft Corp.s most recent version of the Windows operating system.

Shih hoped to bring the fast food concept all the way to the retail level, so that customers could custom-order computers with peripherals and memory capacity specifically suited to their needs. Acer tested this concept at a company-owned retail store in Taipei. It seemed to be as close as Acer could come to McDonalds-style service: only two hours passed from the time a system was ordered to the time it was booted.

Shihs global brand, local touch strategy was closely related to the fast food distribution concept. Instead of creating a series of centrally controlled foreign subsidiaries, Acer established a network of virtually autonomous affiliates, much like a fast food franchise system. Each of these affiliates was managed by a group of locals who determined product configurations, pricing strategies, and promotional programs based on national or regional preferences. The affiliate would usually have just one Taiwanese person on staff to facilitate interorganizational communications. Sales & Marketing Management characterized the system as a revolutionary departure from the traditional hierarchical model of worldwide branches and subsidiaries reporting to a head office. Instead, it was a commonwealth of independent companies, united only in their commitment to a common brand name and logo.

This strategy gave each Acer affiliate the semblance of a local company, an image that carried with it several benefits. Perhaps most important, it helped to downplay Acers Taiwanese roots. Despite the countrys large strides in the area of quality, made in Taiwan continued to carry negative connotations in the minds of many consumers. While Shih was proud of his companys heritage, individual affiliates often found it efficacious to de-emphasize that aspect of the business.

Globalization at Acer employed a third strategy adapted from an Asian chess-like game called Go. Instead of jumping directly into the worlds largest and most important computer markets, Acer conquered the surrounding markets before entering the United States. For example, Acer established itself as the leader in less hotly contested markets in Latin America, Southeast Asia, and the Middle East. By 1995, it was the top-selling computer brand in Mexico, Bolivia, Chile, Panama, Uruguay, Thailand, and the Philippines, not to mention Taiwan.

This combination of tactics worked quickly and well, vindicating many of Acers previously criticized moves. In 1993, Acer posted record profits of US $75 million; 43 percent of that years net was generated by the DRAM joint venture, considered the most efficient in the DRAM industry by some observers. From 1994 to 1995, Acer advanced from fourteenth to ninth among the worlds largest computer manufacturers, surpassing Hewlett-Packard, Dell, and Toshiba. Total sales grew to US $3.2 billion in 1994, and net income increased to US $205 million, as Acer America turned its first annual profit in the 1990s.

Strategies for the Mid-1990s and Beyond

In the mid-1990s, Acer began to globalize production as well as assembly, building a keyboard and monitor plant in Malaysia in 1994. The company planned a motherboard and CD-ROM factory for the Philippines and hoped to set up production in Argentina, Chile, Thailand, Dubai, South Africa, Brazil, India, the Peoples Republic of China, and the former Soviet Union.

In 1994, Shih unveiled a plan to deconstruct Acer into 21 publicly traded business units by the end of the 20th century. Acer Inc. would continue to own anywhere from 19 percent to 40 percent of the firms stock, but Shih hoped that their independent status would enable the individual units to compete more effectively by facilitating entrepreneurship, inspiring research and development, and allowing for corporate fundraising through stock and bond offerings. Michael Zimmerman of PC Week speculated on another possible motivation behind the plan, known internally as 21-in-21. His June 1994 piece on Acer noted that Separating the divisions will also clear a path for Shih to retire and, as one observer said, to leave his legacy intact by not risking the future of his brainchild to a successor. In fact, Shih told PC Week that he expects to withdraw from Acer and the workforce by 1999.

Acer Computer International, the companys Asia-Pacific distributor, had its initial public offering in September 1994. The approximately US $55 million floatation was oversubscribed by about 20 times. Spin-offs of Acer Peripherals, the corporations manufacturer of keyboards and monitors, and Acer Sertek, the Taiwanese distribution operation, were planned for 1996. Stock in Acer America and certain Latin American operations was slated to go on the auction block by 1997.

The Economist reported that Acers revenues had increased by 75 percent from US $3.2 billion in 1994 to US $5.7 billion and that Shih hoped to increase that figure to US $15 billion by 1999 via expansion into consumer electronics like televisions and fax machines. The article also emphasized that Given the computer industrys history of wild swings, Mr. Shihs success may not last forever; but his company is one of the few large ones in developing Asia that may be able to teach western businesses more than it can learn from them.

Principal Subsidiaries

Hsiang Chih Technology Corp. (99.7%); Yang Chih Technology Corp. (74.98%); Hsin Chi Technology Corp. (85.68%); Li Chi International Corp. (51.5%); Acer America Corp. (United States); Acer Sales & Distribution (Hong Kong; 85%); Acer Japan Corp. (Japan; 83.34%); Acer Latin America, Inc. (United States; 85%); Acer Computer Australia Pty. Ltd. (Australia; 85%); Acer Sales and Service Sdn Bhd (Malaysia; 85%); Acer Computer (South Asia) Pte. Ltd. (Singapore; 85%); Acer Computer (Far East) Ltd. (Hong Kong; 72.3%); Fora Worldwide Corp. (United States; 63%); Acer Computer France (France); Acer Computer B.V. (Holland); Acer U.K. Ltd.; Acer Italy S.R.L. (Italy); Acer Computer GmbH (Germany); Acer Scandinavia A/S (Denmark); Acer Computer Vienna (Austria); Acer Market Services Ltd. (Hong Kong; 67.36%); Multiventure Investment Inc. (99.98%); Chun Chi Investment Corp. (99.99%); Acer Worldwide Inc.; Acer European Holdings Acer Holding International Inc. (85%); Acer Computer International Pte. Ltd. (Singapore; 85%); Long Hsien International Co., Ltd. (99.99%); Long Chen International Co., Ltd. (99.99%); The Third Wave Publishing Corp. (99.99%); Hoison Ltd. (99.99%); Chien Chi Technology Management Consulting Co., Ltd. (99.94%); Te Chi Semiconductor Corp. (67.98%).

Principal Divisions

Acer Peripherals, Inc. (46.35%); Acer Sertek Inc. (48.99%); Kuo Chi Electrical Co., Ltd. (49.99%); Acer Argentina S.A. (Argentina; 42%); SV-Acer Co., Ltd. (49%); Acer Africa Pty. Ltd. (50%).

Further Reading

The Acer Group, Los Angeles Business Journal, September 2, 1991, p. S10.

Bits and Bytes, The Economist, March 9, 1996, p. S20. Brennan, Laura, High-Tech Union Shatters Merger Myth: Acer, Altos Upbeat on Profits, Channels, PC Week, March 4, 1991, p. 123.

Carlton, Jim, Compaq and Acer Are Slashing Prices on Entry-Level PCs To Expand Market, Wall Street Journal, November 17, 1995, p. A3.

DiCarlo, Lisa, Acer To Expand Beyond PCs, PC Week, April 22, 1996, p. 125.

Dubashi, Jagannath, The Dragons Curse: Why Taiwans $1 billion Acer Group Is Betting the Store on PCs, Financial World, July 23, 1991, p. 46.

Engardio, Pete, For Acer, Breaking Up Is Smart To Do, Business Week, July 4, 1994, p. 82.

Engardio, Pete, and Neil Gross, Acer: Up from Clonesand Then Some, Business Week, June 28, 1993, p. 54.

Hamm, Steve, Ace in the Hole, PC Week, June 13, 1994, p. A1.

Huang, Charlene, Acer Group Plans Major Leap in PC Market, Electronics, January 23, 1995, p. 13.

, Acer Aims at Latin America PC Market, Electronics, July 25, 1994, p. 14.

Inferiority Complex, The Economist, February 1, 1992, p. 78.

Kraar, Louis, Acers Edge: PCs To Go, Fortune, October 30, 1995, p. 186.

Lazlo, J.J., Electronics Industry 1995 Far East Review, PaineWebber Inc., January 2, 1996.

Mantel, Kimberly, and Wei, Carol, The Datamation 100: Acer Inc., Datamation, September 1, 1992, p. 89.

Morris, Kathleen, The Disintegration Model, Financial World, June 20, 1995, p. 32.

Shapiro, Don, Ronald McDonald, Meet Stan Shih, Sales & Marketing Management, November 1995, p. 85.

Tanzer, Andrew, Made in Taiwan, Forbes, February 26, 1996, p. 134.

, The Great Leap Forward, Forbes, April 15, 1991, p. 108.

TI Enters Taiwan Venture To Make DRAMs, Electronic News, May 15, 1989, p. 1.

Whiting, Rick, Getting Acer Back on Track, Electronic Business, February 1993, p. 76.

Zimmerman, Michael R., Acer To Divest into 21 Public Businesses: Growth Plan To Be Complete by Year 2000, PC Week, June 20, 1994, p. 109.

April Dougal Gasbarre

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