Acer is pumping R1 billion into the channel in a once-off bid to clear old stock it uncovered during a global audit.
The vendor found high levels of inventory in the Europe, Middle East and Africa (EMEA) region, and will provide distributors with a $150 million sales allowance to “clear inventory”.
The Taiwan-based PC distributor says it undertook the internal audit after former CEO Gianfranco Lanci's sudden resignation in March. The audit uncovered “abnormalities in terms of channel inventory stored in freight forwarders' warehouses, and in the accounts receivable from channels in Spain,” it says.
Chairman JT Wang, currently interim CEO, has taken responsibility for the write-off and given up his remuneration and last year's bonus, says Acer in a statement. The company's revenue for the first quarter of the year slumped 11.5%, to $4.34 billion.
In addition to the sales incentive, which will result in a $150 million loss, Acer will reduce its EMEA workforce by about 300 staff members in a bid to get the business back on track for growth. It will fork out $30 million in compensation, but expects to save the same amount each year thereafter.
Don't do it
AxizWorkgroup executive director Craig Brunsden explains Acer has uncovered stock it didn't know it had. He says the sales incentive will allow the channel to move the hardware, because Acer will take a loss on discounting, instead of the distributor.
Brunsden doesn't expect “massive” discounts, but notes older PCs will find their way into the market. He says vendors often incentivise the channel to move aging stock, and Acer's move isn't unique.
However, competitors and distributors warn that Acer's sales incentive could lead to an oversupply of obsolete technology in the market, which vendor and channel companies will battle to move.
Acer's sales incentive will result in an oversupply, but “it will be difficult to clear the stock fast due to obsolete technology,” says Chawla. He expects the channel to take advantage of the lower prices, but to battle to move outdated hardware.
Pinnacle Technology Holdings CEO Arnold Fourie says top-level vendors often write down stock to move hardware. However, he says, the equipment is mostly end-of-life and “people should not buy it”.
In addition, says Fourie, the channel shouldn't be “fooled” into helping Acer move stock that should rather be “thrown away”.
“Everybody is chasing the same market share, and the only way a specific tier one brand can achieve their market share objective is to force-feed the market. This always backfires, though, but nobody seems to learn,” says Fourie.
Mustek CEO David Kan says the channel may see a short-term impact on sales, but Acer is unlikely to have “millions and millions of products”. He says the effect depends on how determined Acer is to move stock.
Kan says Acer may use the price point to force the channel to take on old stock, but he hasn't yet been offered any of the outdated equipment.
No clarity
Acer isn't yet able to provide any information on how many units will be discounted, and what sorts of discounts will hit the market. The company also can't say how many people it will trim from its South African operations.
It says it's developing its strategy and “will provide additional details in the near future”. It's also still looking at the price point based on available stock and demand.
Acer headquarters is working on its organisational structure and will “announce the details of its decisions in the coming weeks”. The company says it “evaluates its cost structure on an ongoing basis”.
Acer is “taking a pragmatic approach to its current excess inventory condition”. It explains that making the excess inventory more price-attractive in the marketplace will improve its “overall condition”, as well as “strengthen its relationship with its channel partners”.
The current scheme should be wrapped up by the end of the third quarter, it adds.
In the first half of the year, Acer continued to lead the market in SA and Africa, it says. “We are very optimistic that we will continue to see a positive economic outlook in SA and the rest of the African continent.”
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