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Acer buys out E-Ten what next?

Brief summary

Acer recently acquired E-Ten Information Systems the deal was officially announced on March 3, 2008, and will be carried out through a share swap valued at around 291 million USD, with new issued shares representing approximately 6% of Acers total. Basically, this take over made the headlines in most online sources, so we will rather jump from numbers straight to the crux of the matter.

The acquisition of E-Ten brings both positive and negative implications for all parties involved this is what we will get our head around in this piece; we will also touch upon the consequences this deal will have on the Russian market, specifically whats going to happen to E-Tens share over here.

To start things off, we need to look into E-Tens current state on the communicator market. The company has been a long-time runner-up to HTC in terms of sales of Windows Mobile devices in Russia; curiously, the increase in E-Tens sales here over the past year alone was fourfold, while its market share doubled. Another thing of note we will take account of later is that Russia, in effect, makes the biggest chunk of the makers worldwide sales. So, while early in 2007 E-Tens spokesmen claimed Russia was only one of the key markets for the manufacturer, in 2008 it is already the foremost region for them. It is safe to say that E-Tens growth as a company is largely thanks to the sales generated in Russia as well as a neighboring CIS country Ukraine.

But E-Ten is a relatively small manufacturer, even compared to HTC, and partly due to this and also the so-called individual approach, they have managed to settle down with Glofiish in Russia. Effectively, the companys business in CIS is taken care of by a small team headed by Mikhail Fadeev, and in many ways it is thanks to his efforts that E-Ten has been on such an upswing lately. The maker has allocated a lot of authority to the managers in this local office, so that they could guide their solutions on the Russian market, although it is not a common practice among Asian companies. But this move has worked out and these days Glofiish is the talk of the town they have positioned it in a proper fashion, banking on the tech-savvy part of the audience and looking to avoid a direct confrontation with HTC (though in fact they have already clashed anyway). Over the time they have been operating in Russia, the level of service offered for their products has substantially increased, plus, thanks to being focused on a narrow group of users, the company has been addressing their needs effectively and thus built itself a good name.

Since this vendor has no substantial production capacities or sales volume, not only has the Russian market become the most vital asset for the company in a very short period of time, but also the money-maker region.

But after getting bought out by Acer, the big picture may change dramatically. Undoubtedly, the direction E-Ten has picked leads to a dead end in some ways; however they have been making certain steps to get closer to the mass market of late. But the important thing is that even before that, their aim at a small target audience did work out. Thats why itd be naturall to assume that even after its acquisition E-Ten isnt going to have its course altered in a big way. Judging by the first bits of info, up until the end of 2008, already inside Acer, they will keep developing and creating products by the old scheme. But later on many things may change for them, and the way they will implement them will be the turning point as to how Glofiish will fare in Russia and Europe: whether they will be going up or nullifying all past efforts. But first, lets talk about whats coming on the Russian market.

Russia

This merger actually took place at a very decisive time for the manufacturer just around the moment when E-Ten commenced preparations aimed at expanding its local headquarters here into a network of offices. Before that they had had only a group of people handling promotions of the brand and taking care of all other affairs of the maker. At the press-conference that took place late in 2007, E-Tens representative s heralded the impending opening of an own office, although now that they have been acquired by Acer, there is probably no need in this left. Perhaps the management and other people working for E-Ten Russia will nest in Acers office, although these details are of no interest to us.

The real question is how their management structure in Russia is going to change. Like we said, E-Tens operations are run by a couple of men these days. And should they change it here, the implications may turn out to be strictly negative. First, they may decide to broaden the distribution network for E-Tens solutions Acer may well throw in own suppliers into the equation, who have dealt only with PDAs thus far, which is a bird of a different color. Such an abrupt increase in the number of suppliers (from three highly specialized companies to a dozen of do-it-alls) can hit the makers sales structure, as it is very unlikely that Acer will be able to get new customer support and servicing schemes straight any time soon. Another thing that may happen is that the company, after having its local management structure altered, inspired by being a part of such a large brand as Acer, can deviate from its todays development policy.

In our opinion this may pose one of the biggest problems brought about by this merger in the year to come. Should Acer or E-Tens management decide to change their policy in Russia and CIS countries, the implications wont take long to come. As long as the companys operations here are run by a flexible local team, that has a strong understanding of the local market and thus rolls out products catering for the target audiences needs, E-Ten is doing well. Glofiish has its own niche, and generally the makers own resources (although to always) still allow them to run with versatile solutions. But once they start expanding the brand and change their sales policy, the focus will be lost immediately. They might elect to develop a couple of fields at a time and therefore lose a chuck of the market everywhere. This scenario doesnt take a rocket scientist to foresee and will almost definitely come true, should they pick this strategy. The reason is that E-Ten doesnt have a lot of manpower and therefore diversifying activities will have an adverse effect on the quality of their products. On the other hand, Acer will join in with time, but for them to accumulate some experience as far as device development goes, it will take some time.

Thats why the best way to go in this situation would be to preserve the current management structure in Russia and continue the development of E-Tens primary line-up with a view to weighting the portfolio towards the mass-market.

Europe

As far as the European market goes, the brand of Glofiish is nearly an unknown. The truth is, these devices are supplied to and distributed in different European countries, but the aggregated sales in this region are so measly that it is the same as saying that the manufacturer is still idle on this market. One of the steps aimed at winning over Europe, as E-Ten sees it, is the development of the V900, a TV-enabled communicator, although its release is still a couple of months from now. But the core problem for the companys business in Europe is that they have no agreements or bonds whatsoever with local carriers. There is no denial that the carrier market is above everything else in Europe and having no chunk in it automatically puts E-Ten off the list of active and sustainable players.

Nevertheless, today, in view of the acquisition, the management has high hopes for Acers intervention probably, E-Tens staff think along these lines: Acer has a lot of connections and local headquarters across Europe, including offices in different cities and partnership deals with many suppliers. In other words, Acer has some weight there, and it is not the last player on the IT market in Europe.

For E-Ten this may well be a nice boost for their business; however, Acer has no connections or deals with carriers either, since they are only entering this market. So, on balance, E-Ten cant get a share of the Windows Mobile segment for itself in Europe, as it has no muscle on the carrier market, and, on the other hand, even under Acers wing they will be facing exactly the same problems, yet with a new trump up their sleeve the parent brand with its developed infrastructure.

Bottom line

It is a tad too early to make final conclusions on the future E-Ten, as well need to wait some time before assessing the makers first steps in the new environment. However the big picture doesnt look very good for E-Ten. No doubt, they were moving towards a dead end, thriving on one particular market, but, on the other hand, given their measly sales, this path gave them the freedom to look for a way to set their European sales straight. Being a small manufacturer surely brought some benefits for E-Ten, specifically the ability to react and address for even the slightest changes of the markets tendencies in very short periods of time. The lack of large-scale production also helped E-Ten to launch new offerings faster than the competition.

But with this acquisition E-Ten loses its major trump card flexibility; the thing is, being a part of Acer they will need to kick their sales and revenue up, since these days the income they generate wont make any the difference for a company as big as Acer eventually their management will insist on looking for new revenue opportunities. So we can only hope that Glofiish wont die off after teaming up with Acer and will keep progressing in spite of all holdups and trouble they are in now.

Artem Lutfullin (artem.lutfullin@mobile-review.com)
Translated by Oleg Kononosov (oleg.kononosov@mobile-review.com)


Published - 25 March 2008

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