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Rebooting Acer

Acer CEO Jason Chen charts a new course for the iconic computer maker to turn it into a multi-dimensional technology company.

'Years ago, when Wistron was spun out of Acer, the entire R&D team went along with it and Acer did not have any R&D. We have worked on that and last year, we filed more than 400 patents to the level that competitors came to us asking to license our technology. This has given us confidence that we are doing right.'

WHEN Jason Chen, corporate president and CEO of Acer Inc, took charge on January 1, 2014, he was given a clear mandate: Turn around the iconic Taiwanese computer maker and stop its financial bleeding.

Pretty early on, Mr Chen realised that the task was easier said than done. Around 80 per cent of Acer's over US$8 billion revenue comes from the PC industry, which has been in decline for some 20 quarters. According to market research, global PC shipments fell 9.8 per cent in 2013, 10.4 per cent in 2015 and is expected to drop another 7.3 per cent this year.

"In all my career, nobody taught me how to manage a business in a declining market. No school teaches this or how to do a turnaround," says Mr Chen.

To understand the problem he faced (and still faces), one needs to look into the company's history. Acer was founded in 1976 as Multitech in 1976 by Stan Shih, his wife Carolyn Yeh, and five others. Starting out very small, the company quickly became a significant player in the PC industry and was renamed Acer in 1987.

In the early 2000s, the company decided on a major restructuring. This resulted in two primary units: brand name sales and contract manufacturing. Acer got rid of its manufacturing units, BenQ and Wistron, to focus resources on design and sales.

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Initially, this paid rich dividends for the company as, with low overheads, it was able to garner significant marketshare. However, as the PC market started to slow down and contract, Acer found itself in trouble. With most of its R&D resources having gone over to Wistron, the company found it difficult to innovate itself out of the mess. Towards the end of 2013, the then chairman and CEO JT Wang, and President Jim Wong, both resigned, paving the way for Mr Chen to take charge the following year.

Building multiple businesses

"At its peak Acer was a group of 11 public listed companies around the world. One of them was listed in Singapore as well, around 1999-2000," says Mr Chen.

He adds: "We actually built our own buildings in multiple countries. But for whatever reason my predecessor decided to divest and concentrate in one area, which is the PC industry, hoping that it will remain evergreen for ever.

"But every industry always has a life cycle that goes up and down. We now have one engine, which is the PC business. My charter is to build multiple business engines that will, over time, be able to cushion one another when the industry goes up and down."

Mr Chen is, however, clear that the new businesses must be compatible with Acer's core competencies in PCs and computing. "We'd be a disaster if we went into, for example, the construction industry because we have no competencies in that industry," he says, adding : "Secondly we want to enter a business that is growing and not declining."

In many respects, Mr Chen is the ideal man for the job of turning around one of Taiwan's best brand names. He started his career as an entry-level sales representative in IBM Taiwan where he worked for three years. After that, he spent 14 years in Intel, starting as a sales representative and working his way up to become the head of Intel's worldwide sales and marketing, one of the few Asians to rise to the top rungs of a global company despite starting their career outside of the US.

"I look around and very few in Asia start from a low level sales guy and go on to headquarters to run a Fortune 100 company to manage global sales. This gave me a very different view of life."

After his Intel stint, Mr Chen moved back to Asia, joining Taiwanese semiconductor foundry TSMC (Taiwan Semiconductor Manufacturing Company). After nine years in TSMC, Mr Chen assumed his current role.

As a result of various meetings and internal brainstorming sessions, Mr Chen and his team decided on a three-pronged strategy to turn around Acer. The first is to look for niches within the PC industry that were still growing and concentrate resources there so as to become the top global player in that particular area.

The more ambitious part of the strategy sees the company moving into two new areas - the technology component of the long-term care industry and virtual reality (VR) applications for the entertainment industry. In both these areas, Acer plans to leverage its core competency in computing and hardware to create value.

Earlier this year, Acer acquired a 48.98 per cent stake in US tablet maker grandPad Inc for US$11.04 million. grandPad makes tablets designed for use by senior citizens, many of whom may not be technologically savvy. These tablets, which run on a customised version of the Android operating system, are easy to use with larger fonts and simple applications.

On the face of it, this investment by Acer would seem counter-intuitive. Mr Chen strongly believes that the pure hardware business in tablets and smartphones is dead.

"It is not even worthwhile to be in manufacturing and more companies are trying to get out than get in. Investment bankers are trying to sell off these pure hardware plays as the clear winner has already been identified and that is Apple. If you look at how much money Apple is making in comparison to Samsung, it is clear who the winner is."

Then why did he go and buy a stake in a niche tablet maker in the US?

"Our strategy is to create a different business model that will involve the smartphone and tablet hardware and software and the services that go with the business model." In keeping with this strategy, Acer in April inked a strategic alliance with US-based Comfort Keepers, a leading provider of in-home care for senior citizens and adults who need help performing daily activities.

Together with Comfort Keepers and use of the grandPad devices, Acer aims to expand its reach in the long-term care industry in the US, according to Mr Chen.

Long-term care industry

"There are 20 million senior citizens older than 75 years in US. Ten years later, this figure will go up two times. There are many people in this group who live alone at home. They can take care of their lives but they don't know, for example, how to create a WhatsApp group.

"So we are creating a trusted community for them through this tablet. Our proprietary designed software will help them to remain in contact with family and friends."

Mr Chen adds that Comfort Keepers, a French group, is the Number 1 eldercare giver in the US with 10 million clients. "In the US, eldercare is fairly well institutionalised based on their (American) culture. They take care of people living at home. They charge US$20 an hour and the average billing per week is for 20 hours. So you can pretty much calculate that money involved.

"They (the caregivers) will go to a client's house for simple cleaning chores and then perhaps cook a meal and go away. The grandPad service is a premium offering; when a Comfort Keeper representative comes to the house, the elderly have people to take care of them. And when they are alone, they can still keep in touch through the device. We charge them for the service and on a monthly basis. So you are talking about a totally different model, instead of selling just a piece of hardware, the tablet."

Mr Chen adds: "The fun part of that is that we don't really sell it to old people. The business model is based on the guilt of middle-aged kids, they buy it for their parents. Maximum sales are during Mother's Day and Father's Day."

Asked if Acer has any plans to bring this service to Singapore, Mr Chen says that the company is approaching this very cautiously.

"We are not naive, the business was created in the US and is optimised to the US culture. So we are very careful on how we expand the business outside of the US," says Mr Chen.

Wellness foray

He adds, however, that a lot of interest has been generated globally among caregivers. After Acer made the announcement in New York, representatives from many countries approached Acer. "This is a new business opportunity for us and there is more to it than just making a tablet with bigger fonts," he points out.

"We plan to launch in another country in Europe soon. When are we coming to Singapore? We have a schedule. We have to do it very properly so that people trust us and the value created is well received."

In a related move, Acer is also moving into the wellness business by developing sports trackers specifically for biking enthusiasts.

"We are coming out with what we call a biking computer, the first GPS-enabled device with a camera and 3G connectivity. How different is that from a smartphone?" asks Mr Chen.

The device would have spatial GPS that gives data in three dimensions, including altitude. "The camera is also unique - our R&D team comprises serious bikers and they understand the pain points that bikers face.

"When you bike, where do you put your camera? A good quality bike is very light and when you ride it, it's not very stable. If you want to use one hand, pushing the button to take pictures you can't really do it, so the only way to capture moments of your ride is via video.

"And if you bike for three hours what are you going to do with a three-hour video? You'll put it inside a drawer and never look at it again.

"So the camera is designed such that it will detect your heartbeat, when it goes up it takes a 10-second or 20-second video. When does your heartbeat go up? When you go uphill or take a turn and see a beautiful scenery, or if you fall down or meet someone interesting. All these moments would be recorded. Therefore, after a three-hour journey you will probably have a five-minute video which is much more manageable."

This is the first of many devices that Acer is planning to release in the sports biking market. "We will also have a backend social website where users will be able to upload their biking route and can compare with others or themselves.

"We can do data analysis. The nuance for sports is about competitiveness, you want to win over other people or yourself. You want to remain healthy. Our social site will help you do that."

Mr Chen is very excited by the possibilities that virtual reality (VR) brings to the table. However, Acer has taken a different approach to VR compared to competitors such as Samsung or Facebook. Instead of focusing on consumers by launching new VR headsets, Acer is looking at the commercial use of this technology.

It has formed a joint venture with Stockholm-based game developer Starbreeze Studios and is cooperating with movie company IMAX Corp to provide location-based entertainment through helmet-mounted displays (HMDs).

Mr Chen notes that the first VR device came out way back in 1964 for training pilots. "But there was no sustainable business model. But now gaming and movies are coming together -- for example, one of the most popular movies today is Warcraft, a movie adaption of an iconic computer game. This provides us with an opportunity to play in this market.

"I was at Cannes recently for a movie festival and I met a bunch of gaming developers. Afterwards, I sent a few Acer representatives to a gaming event and they met a bunch of movie people. So gaming and movies are coming together and the question is - how do we become a part of this phenomenon?

"We already have a strong gaming platform through our high-end gaming PCs as well as the computing expertise that is needed," Mr Chen adds.

Acer's joint venture with Starbreeze is to make the HMDs and Starbreeze in turn has a JV with IMAX for 3D filming, he adds, noting that IMAX also had a joint announcement with Google recently to launch a 360-degree VR camera to make movies.

"Lionsgate, Paramount, Discovery Channel are already onboard in this effort and you pretty much see that the industry ecosystem is coming together.

"Besides our JV with Starbreeze, we have also invested in the company through a private placement and we will take advantage of their relationship with IMAX and movie theatres," Mr Chen says.

Acer's first target is movie theatres and then theme parks and Internet cafes, he says and adds: "Once we cater to the commercial customers we will bring it down to the consumer level and in between there will be smaller segments like aviation simulation, or medical training and the automotive industry."

He notes that IMAX has already announced that it will build six experience centres around the world for VR movies, with the first coming up in Los Angles by the end of this year. "IMAX has said that Starbreeze and Acer will develop these centres," adds Mr Chen.

The Acer CEO notes that the company's opportunity would be in the server, the computers that would be attached to every seat and the HMDs. Mr Chen believes that VR has the potential to bring audiences back to movie theatres. The HMDs can track eye movement and this generates a lot of data which can be analysed by filmmakers to optimise their films.

And with VR, filmmakers can weave various sub-plots into the movies which would be an incentive for moviegoers to see the movie more than once since every time they would see a slightly different movie, based on which sub-plot they follow. "Suppose you don't want to just see the fight between Iron Man and Captain America but want to see what the other guys are doing? You can go back to the movie again and move into one of the sub-plots, much like you would in a computer game."

With his bold moves into eldercare and VR, when does Mr Chen expect to see these new business lines contribute significantly to the Acer bottomline?

"It is not that simple that one number will be able to explain everything. Acer is a multi-billion dollar company. To make a new business, US$300 billion or US$500 billion is significant. But if you put that inside a US$8-US$10 billion business, you can't see it as it's too small.

"So what we will do is we will look at how good a business opportunity it is. Should it be part of Acer or should we spin it off, so that it can be independent and the employees will be more motivated?"

Ramping up R&D

Mr Chen agrees that the PC business will remain the bread and butter of the company for the foreseeable future. And so he is also trying to ensure that Acer has the right product mix to survive the sluggishness of the industry.

"When I joined the company two-and-a-half years ago, we didn't have a clear direction forward. In order to stabilise our PC business, we picked up the right segments where there was money to be made and in other segments, we give our best shot, hoping for the best. The net result has been that we have been profitable."

Mr Chen understood early on that in order to succeed Acer would have to ramp up its R&D. "Years ago, when Wistron was spun out of Acer, the entire R&D team went along with it and Acer did not have any R&D. We have worked on that and last year we filed more than 400 patents to the level that competitors came to us asking to license our technology. This has given us confidence that we are doing right."

The company has concentrated efforts in certain segments of the market such as Chromebooks - computers which run on Google's operating system called Chrome. "Acer is Number 1 in this segment despite charging a 10-20 per cent price premium. We are probably the only company making money in Chromebooks."

The other area where Acer has made inroads in is gaming computers and gaming monitors as well as two-in-one devices. According to Mr Chen, the company has innovated by coming out with liquid cooling technology that eliminates the need to have a fan inside a computer.

Mr Chen realises that it will be a long haul to get Acer back to its glory days. But he's an optimist. On his 45th birthday on a yacht in a glittering bay in Hong Kong, Mr Chen made a wish - he wanted to grow younger every year.

To achieve that he's put himself through a rigorous discipline in diet and exercise - and it shows in his appearance. This single-minded focus is also what will stand him in good stead as he steers Acer through turbulent waters to safe harbour as a multi-dimensional technology company.


Corporate President & CEO, Acer Inc

1961 Born in Taiwan

1979-1983 Bachelor's degree in Business Administration, at Taiwan's National Cheng Kung University

1983-1985 Army service

1985-1987 MBA from the University of Missouri in the US

1988-1991 IBM Taiwan in sales

1991-2005 Intel Corporation, in a variety of positions leading to appointment as Corporate VP of Sales and Marketing Group based in the US

2005-2008 VP of Corporate Development, TSMC

2008-2013 Senior VP of Worldwide Sales and Marketing, TSMC

2014 Corporate President and President, Acer Inc


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