What's Behind Acer's Vista Complaints?

By Scott M. Fulton, III, BetaNews

October 30, 2006, 11:58 AM

In an interview published last week by the British publication PC Pro Acer Senior Vice President James Wong complained that Microsoft -- a company with which Acer has, at least on paper, partnered -- is actively scheming to force computer users to invest in more expensive PCs, in order to take advantage of the more feature-rich tier of its upcoming operating system, Windows Vista Home Premium.

"The new experience you hear of, if you get [Vista Home] Basic, you won't feel it at all," Wong reportedly stated, adding that the company is actually actively undermining its own lower tier in an effort to persuade customers to move up the value chain.

Acer is among many manufacturers whose names have been associated with the "Certified for Windows Vista" logo program, which is on Microsoft's upper tier. The "Certified" label, which at one time was to have been called "Vista capable" as opposed to "Vista ready," is a symbolic guarantee that new computers will render the new Vista environment with such graphic features as 3D transformations and partial alpha transparencies.

Without a graphics card that supports the DirectX 10 library, PCs will only be capable of rendering Vista with a more conventional appearance - certainly not plain, but without much of the "experience" that Microsoft has been touting as a principal Vista feature.

Last August, as Bloomberg News reported, a Hong Kong-based trade publication stated Acer would be among several manufacturers that have been asked to pay a portion of customers' upgrade fees, when they purchase a Vista-capable PC without Vista installed this holiday.

The paper provided what it claimed to be reliable estimates of $5 to $7 per coupon. A representative for Microsoft in China told reporters there that partners were free to choose their own strategies for handling that fee, meaning it would be up to them whether to pass that cost on to the customer.

In Wong's interview with PC Pro, he complained that manufacturers must pay 10% more to license Vista Home Premium than they currently do for XP Home Edition, which is not divided into "basic" and "premium" tiers. He indicated that this does directly result in price hikes for PCs, of about 1% to 2%.

In a global PC market whose growth rate is declining, by most reliable estimates, Acer's shipment growth this year has been around 40% annually, based on numbers from both Gartner Group and iSuppli. Briefly, Acer topped Lenovo on Gartner's list as the world's #3 PC supplier, and in iSuppli's list, the margin between #4 Acer and #3 Lenovo is razor-thin. Last week, Acer reported quarterly revenue up 17.1% from the same period in 2005. Meanwhile, market leader Dell is experiencing some serious declines, especially in the US.

How does Acer manage to buck the trend? An analysis published two weeks ago by GitexTimes points to two factors: Acer's steady growth in notebook PC sales, and the company's rapid push in emerging markets, such as the Middle East and Africa.

For example, Acer has recently scored exclusive supply deals with the governments of Jordan, Oman, and Bahrain. These deals include desktop PCs, which may be one major part of the reason why its desktop PC shipments are rising while others are falling.

But these shipments to the public sector and to emerging markets are clearly outside of Vista Premium territory, to customers for whom the "Certified" logo will least matter. Even with desktop PC shipments growing, though, they reflect 16% of the company's revenue, while 60% comes from notebook computers, and the remainder from sales of displays and MP3 players.

It's a lot easier for an OEM to upgrade a desktop PC line than a notebook line, especially with all the platform innovations that a DirectX 10-capable feature set requires. So the crux of Acer's complaints could center around the possibility that it's being persuaded, if not forced, to upgrade its feature set in order to stay competitive in markets that were not responsible for Acer's success this past year.

Microsoft informed BetaNews earlier today that an official comment on this subject may be forthcoming.