Shih encourages investors to buy into Acer

Stan Shih (施振榮), chairman of Acer Inc (宏其石電腦), yesterday encouraged foreign investors to buy back into Acer as their stock holdings in the company continued to dwindle to less than half their levels six months ago.

But the chairman's words are likely to go unheeded.

"Foreign investors originally bought Acer because they liked its hardware and PC business," said Tony Tseng, vice president and analyst of Taiwan's downstream industry at Merrill Lynch, Pierce, Fenner, & Smith Inc.

They didn't buy it because they liked its long-term prospects, analysts said.

Acer Inc, one of the world's top-10 computer makers, has been attempting to persuade investors to look beyond its core business of desktop PC and notebook manufacturing and focus more on the earnings and growth potential from its long-term investments and affiliates. By doing so, the company says investors will see a steadily growing company, with an after-tax profit per share of at least NT$3 over the next five to 10 years. Last year, the company posted an earnings per share of NT$1.96.

Acer's Shih yesterday used his speech at the "Made in Taiwan Conference 2000," arranged by CLSI, a foreign securities house, to drum home this message to an audience of local and regional foreign investors. As the controlling company for Acer Group, Shih reportedly described Acer Inc as a dumpling or a chicken egg, where the real value was inside. But thus far, foreign investors have been uninterested in that "real value." Instead, they have continued to make their investment decisions based on Acer's core business.

"If they want to buy a holding company with lots of tech holdings, they can buy China Development Industrial Bank," said an analyst from a foreign securities house. China Development is the biggest bank in Taiwan by market value and has many investments in developing technology industries.

The foreign-owned stake in Acer Inc has fallen from over 14 percent of the company six months ago to less than 6.5 percent last Friday. During that period, the company's stock has fallen from a 52-week high of NT$80 at the beginning of April, to a year low of NT$32 earlier this month. Yesterday, it closed up 2.06 percent at NT$34.6 on turnover of 51.8 million shares, the third highest in the market. Of a profit per share of about NT$3 predicted by analysts for 2000, about 75 percent will not come from its core business, said Ruster Luo, an analyst at Taiwan International Securities Corp.

Meanwhile, that diminishing portion of net profits that does derive from Acer's core business is suffering from slowing industry growth and intense competition. That's why foreign investors have been selling.

"Acer's core business is about desktop and notebook selling, and their margins are going down," said Aaron Wu, an electronics analyst at Barits Investment Services.

Acer's sales last month fell 8.4 percent from a year earlier to NT$8.3 billion. Sales in the first eight months of the year amounted to nearly 56 percent of the company's full-year target of NT$150 billion. Part of the slowdown in sales was caused by the cancellation of a contract by IBM worth NT$20 billion.

But while Acer's sales have fallen, its affiliates have fared better, and become more attractive investment targets as a result. Acer Communications & Multimedia Inc, for example, said August revenue rose 7 percent from a year earlier to NT$3.8 billion. When the long-term potential is in the affiliates, "if they IPO, foreign investors will buy that company, not Acer," said Barits' Wu.