Acer CEO: Smart Phones Will Represent 10 Percent of Our Revenue Next Year

After getting hands on with the 11.6-inch Aspire One and Acer’s new Timeline T4810 last night, Mark Spoonauer and I sat down with Gianfranco Lanci, Acer’s President and CEO.

In just 15 minutes, we managed to cover a lot of ground: Acer’s growing smart phone business, Nvidia Ion on netbooks, subsidized netbooks, CULV, and what the competition is doing wrong.

Among other things, he said that:

• Acer is capable of making notebooks that can last more than one day on a charge.
• Phone makers like Nokia are going to lose money if they try to sell netbooks.
• Nvidia Ion doesn’t make sense for netbooks.

Read the full Q and A below to get all the (candid) details.

Q: ASUS was first to market with netbooks, but Acer took over and hasn’t relinquished its lead. Why do you think you retained this position in the netbook market, and how long do you think you can hold on to that spot?
A: The reason, I think, is when we announced the first Aspire One we paid attention to, one, the size of the display, and the keyboard. Today we’re running around 45 to 50 percent worldwide. How we can keep it: we showed off 10 and 11-inch [models] much thinner than before with much longer battery life. We will continue to work on new generations. In this business there is only one simple rule when introducing new products: the right product, the right time, the right cost.

Q: Will netbooks gain more momentum, or will affordable ultraportables start to gain more market share?
A: There is cannibalization, and we are talking about maybe five, ten percent. People tend to replace notebooks with netbooks, or think of a netbook as a small notebook. I don’t think a netbook is a small notebook. A netbook makes a lot of sense if you think about the very little devices with very good connectivity and a good experience in terms of browsing. If you think about the number of Internet users today and the number of Internet users three to five years from now, [in] most cases these people will need a netbook, not a notebook. To get access to the Web, to browse, and to e-mail. I think a mobile internet device is a very good tool to grow the market.

Q:  Do you feel the Aspire Timeline is proof that it is possible to innovate in the low-cost notebook space, in terms of how you’ve dealt with heat and battery life?
A: I think it’s possible. When you talk about battery life I think there still are a lot of things to do. We are 8 to 10 [hours]. But we started to realize we can go even deeper, so you can have even more than one day of computing. And that doesn’t mean they need to be expensive. If you want to grow the market you need an affordable price, otherwise you’ll have a niche market, but we don’t want to be in a niche market.

Q: You’re within striking distance of replacing Dell as the number two PC vendor in the world. What’s Acer’s ultimate goal in 2009 and into 2010?
A: The ultimate goal is becoming number one in mobile. Probably by becoming number one in mobile we will also replace Dell as number two because mobile will continue to grow. Maybe it’s going to take another two years. But we want to be there. And we are working in order to be there.

Q: Do you feel like being number one in mobile will include the smart phone initiative you started?
A: This is one element of [being] number one in mobility. Today, mobility means a smart phone and netbook and notebook. So, we also need to develop a smart phone.

Q: How do you think Acer’s going to leverage its individual strengths in the smart phone space?
A: The phone is important, but it’s a given: if there’s no voice, it’s not a phone. But the real experience you want to see is a PC experience and in most of the cases you don’t see it today on smart phones. I think we can bring something because we’re coming from PC experience and we know how to manage the data much better than people coming from mobile.

Q: What do you think when you hear that Nokia is thinking about getting into the netbook or notebook space?
A: I feel we are much more advantaged than phone makers simply because PCs are a very special industry. Frankly speaking, I don’t understand how people coming from phones can manage to be in the PC industry without losing money.

Q: Right now Acer is placing more of an emphasis on industrial design and battery life, but software is becoming increasingly important. How do you plan to stand out on that front?
A: User interfaces are becoming another important differentiation. You need battery life, you need design, you need a user interface. There are a lot of limitations when you work on an interface for Windows-based devices. It’s much easier when you talk about smart phones. One important thing is people expect a similar user interface between PCs and phones. To move from one device to the other without a big change. The other important thing is the connectivity between the different devices.

Q: Acer has a relationship with AT&T and other carriers for your subsidized netbooks. How is that initiative going? Do carriers have to experiment with other pricing models to attract more customers?
A: If they want to grow a data business they need to experiment with different pricing, no doubt. Europe is even more advanced than the U.S.: you start to see offers at 49 Euro and even below. The other important thing is the plan. You need to have a monthly fee which is affordable. But in most of the cases today you see affordable plans but [they’re] limited number [of gigabytes per month]. I think this is just the beginning.

Q: There have been reports that Office Depot and other retailers are turning away customers when they refuse to buy extended warranties and services with their notebooks. Are you in communication with retailers when you hear stories like this? What do you think when you hear that retailers might be deceiving their customers?
A: For sure, they have a margin problem. They need to find a way to generate some margin. Very often they are too aggressive on their pricing. On the other side, I think they should focus much more on the product. Service is important but today they’re not the best solution from a customer point of view. There are people that are much better organized when they offer service than retail. And customers start to understand. Why should they pay more?

Q: Do you think Nvidia Ion could redefine netbooks if you decided to adopt it, and would you?

A: You can do that, but then you have to think about a netbook with optical and Graphics chips are responsible for processing all images sent to your computer?s display.
Learn Morediscrete graphics and so forth and then you are back to a notebook. It’s not a netbook anymore. You can still do 12 inches, but it’s a notebook. The features of a notebook existed before. Ion is a good solution…

Q: But Ion might not fit in the netbook space?
A: Yes.

Q: Looking forward, for the next 12 to 18 months, what do you see as the biggest growth areas?

A: Netbooks and notebooks. Our goal is to have smart phone represent at least ten percent of our revenue next year.