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Trouble in EMEA for Acer - $150 million write-off and 300 redundancies

by Scott Bicheno on 1 June 2011, 16:42

Tags: Acer (TPE:2353)

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Unraveling

Acer - the world's second biggest PC vendor by volume - has announced it will be writing-off $150 million in EMEA to deal with ‘abnormalities in terms of channel inventory'. At the same time, although not necessarily caused by this, Acer announced it will be streamlining its already very streamlined EMEA operations by cutting 300 jobs.

The announcement came straight from head office in Taipei, and includes some obscure phraseology, so we're going to replicate each paragraph verbatim (in italics), and then provide an interpretation of it.

 

Acer's board of directors today agreed to take one-time action on recent findings of high channel inventory and disputed accounts receivable in EMEA (Europe, Middle East and Africa) operations. Acer will provide channels with US$150 million in sales allowance to clear inventory, which will result in operating loss of the same amount.

There's a lot of Acer stock floating around in the channel - i.e. distributors, resellers and retailers - and not all of it is correctly accounted for. It's going to cost Acer $150 million to sort this out. From this we assume that channel partners have been saddled with a bunch of stock they can't shift, and Acer is either buying it back off them or incentivizing them to discount it.

Following the replacement of former CEO and company reorganization, the new management team carried out internal audits of EMEA operations and discovered abnormalities in terms of channel inventory stored in freight forwarders' warehouses, and in the accounts receivable from channels in Spain.

An inferred passing of the buck to departed CEO Gianfranco Lanci, and an implication that there's stock sitting in warehouses that should be elsewhere. Perhaps there has been some creative accounting going on, and if so maybe the Spanish channel is the worst offender.

The investigation also found areas for vast improvement on managing channel inventory and accounts receivable, making Acer liable for loss. After thorough evaluation, the management team has recommended to the board of directors to take one-time action by providing sales allowance and working together with the channels to solve the current issue, resulting in US$150 million write-off in operation loss. Acer does expect, however, to put business back on the right track soon.

There has been a more general lapse in managing inventory from the Acer side. This will, of course, have in no way been a direct product of Acer's long-time strategy of striving to be the world's leading PC company by volume, and the consequent pressure on country managers to constantly beat sales targets. The Acer board has already attempted to pin that strategy on Lanci.

Acer will continue to identify the cause and related responsibility ownership, propose actions and make appropriate workflow adjustments to enhance future management.

Remaining Acer EMEA execs had better be ready for some pretty awkward questions in the next few weeks, and it's never a bad idea to ensure your CV and LinkedIn profile are up to date.

 

On top of all that, to show it's taking some responsibility for all this, the Acer board has announced it will be cutting its FY 2010 remuneration in half, and CEO/chairman JT Wang all his remuneration, including bonus, for 2010. The board has also recommended all 2010 employee bonuses be cut by 40 percent, so we imagine the EMEA team won't be too popular at the next global gathering.

So what does all this mean? Clearly something is broken at Acer EMEA, which will have been the region Lanci had the greatest direct influence over. But if Acer had been heavily incentivizing employees to hit aggressive sales targets, and some liberties were taken in doing so, that's not wholly surprising. In retrospect Acer's strategy of targeting the volume notebook market was unsustainable - especially once consumers started looking to tablets instead.

There may be some good news for the channel and, ultimately, consumers in all of this, however. If some of that $150 mil is earmarked to support retail price promotions, we may see the likes of PC World offering older Acer notebooks at special discount prices in the coming months. We'll certainly be keeping our eyes peeled.

 



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