Acer losing money on Tablet PC

TAIPEI, Taiwan -- When Microsoft Corp. Chairman Bill Gates introduced the first prototypes of the Tablet PC in 2001, he predicted that the devices would become the most popular form of PCs within five years. But that prediction hasn't yet translated into high volumes for Acer Inc., which continues to lose money on its Tablet PC line, according to a company executive.

"Nobody is able to actually be profitable making the Tablet PC," said Campell Kan, the chief officer of Acer's notebook products division, in an interview on the sidelines of the Computex exhibition here last week.

Acer is a high-profile supporter of Microsoft's Tablet PC initiative and was the first company to unveil a convertible Tablet PC design, which can be switched from a conventional notebook into a tablet-like form factor.

Despite its early enthusiasm for the Tablet PC, the Taiwanese PC vendor is losing money on the devices because shipment volumes have remained low, preventing the company from achieving the economies of scale in production that would allow it to recoup its investments -- $10 million and rising -- on development and marketing of the devices, Kan said.

"Our current run rate is around 8,000 to 10,000 (units) per month," Kan said. "We are not satisfied with that."

Acer had hoped to ship 20,000 to 30,000 units per month for each of its three existing Tablet PC models, according to Kan. "That's where we're able to reach economies of scale," he said.

There are several reasons for why Tablet PC sales have been slow, Kan said, citing high prices and a lack of applications that take advantage of the Tablet PC's functions. In addition, Microsoft has not been aggressively marketing the Tablet PC to end-users, he said.

"I don't see that Microsoft has been continuously doing much to help grow the market," Kan said. "They are working on that right now. Supposedly, for Q4 this year, they are working on some marketing campaign."

That timing may be crucial. Fourth-quarter sales are typically higher than in other quarters and an aggressive marketing push by Microsoft could help lift sales, Kan said.

Currently, Tablet PC sales in Asia account for around 1 percent of notebook sales, said Kitty Fok, director of personal systems research at IDC Asia-Pacific. And the prognosis is not good. "Sales have been slowing down," she said.

Fok sees the high price of Tablet PCs relative to other laptops and a lack of applications tailored to take advantage of Tablet PC's functions as factors that have held back sales of the devices.

"It's pretty much a niche market at this moment," Fok said. "It will be easier for Tablet PC to pick if there are some special applications for the Tablet PC or prices drop."

Nevertheless, Acer is hoping for the best. The company expects to see shipments pick up to around 20,000 units in the fourth quarter, Kan said. Whether this increase in shipments can be maintained is another matter.

"The question will be how long will this momentum last," Kan said.