Quotes of the Day

Stan Shih, who is regarded as the founding father of Taiwan's technology industry, wanted to create the first Chinese computer company known throughout the world. He succeeded—but victories in the PC business are rarely decisive. In late 2000, Shih confided to a colleague that Acer, the PC and electronics manufacturer he built into a global brand, was in deep trouble. "He told me that in the PC business, it's impossible to make a profit," recalls J.T. Wang, who became Acer's chairman and CEO in January when Shih retired.

Shih had plenty of reasons for pessimism. The brutally competitive computer industry last year claimed even mighty IBM, which sold its PC division to China's Lenovo. But Acer has not only survived; it is thriving. After an embarrassing retreat from the vital U.S. retail market in 1999, Acer has since rebounded to become the No. 5 computer brand in the world. While global PC sales were up 14.7% overall last year, Acer grew at a 34.5% clip, meaning the company is gaining ground on the top four: Dell, HP, IBM and Fujitsu Siemens. "Most people couldn't see a turnaround happening, but Acer has a decent brand that's quite successful in Asia and Europe," says Steven Tseng, an analyst with Yuanta Core Pacific Securities in Taipei. "It's been a remarkable comeback."

It's a comeback with a caveat, however. Acer is prospering because it no longer makes computers—or anything else. Since Wang took over as Acer's president in 2000, the company has undergone a no-prisoners downsizing that jettisoned all of Acer's electronics manufacturing operations. The computer-making arm and contract manufacturing businesses were spun off and renamed Wistron. The consumer-electronics division became BenQ, and an LCD maker became AU Optronics. The new Acer exists primarily as a computer design, distribution and marketing company that hires contract manufacturers such as Taiwan's Quanta Computer to ship Acer-branded machines from factories in mainland China directly to distributors.

Acer's story is an inspirational one for other Taiwan electronics firms. Its strengths are flexibility and a willingness to buck conventional wisdom. While other PC companies were abandoning traditional sales channels to compete with Dell's Internet-based direct-sales model, Acer stuck with conventional distributors such as Ingram Micro. The strategy allowed Acer to reach larger markets without building a costly direct-sales infrastructure.

The plan has worked particularly well in Europe, where Gianfranco Lanci, now Acer's president, carved out a growing business by selling lower-priced laptop PCs to consumers. Without the burden of costly assembly lines and inventories, Acer can reduce the price of its PCs quickly. Rolling out new technology happens faster, too. Earlier this year, Acer started selling laptops with Intel's Sonoma chipset a month ahead of the competition. The company is also able to focus on creating innovative, consumer-friendly designs, such as snazzy, red, Ferrari-branded laptops that are proving popular in Western Europe.

Acer's continued profitability is not assured. The company posted earnings of $219.7 million last year but its operating margin was a knife-edged 1.7%, compared with Dell's 8.6%. Yet Wang and Lanci are in expansion mode, investing in marketing and distribution networks in China and the U.S. The goal is to become one of the top three PC sellers by 2008. Even Shih seems impressed. "[Wang] has helped place Acer on the right track," Shih says,"and onto a steady and growing momentum." High praise from the man who once thought there was nowhere for his company to go but down.

• Nellie Huang | Taipei
• The goal is to become one of the top three PC sellers by 2008