Acer Q2 results show risks of cheap netbooks

It is also a reminder of how Acer's consumer-driven focus remains risky though it outperforms rivals such as Dell and Lenovo which are suffering more due to their reliance on corporate demand. Acer leads the pack in the netbook PC segment - one of the brightest spots in the weak technology sector this year -- with research firm IDC expecting shipments to jump about 127 percent this year in a largely steady overall PC market.

"The reality is that prices are coming down, and a major cause for the falling prices is netbooks," said Edward Yen, a UBS analyst. "It seems to me that they're selling plenty of computers, but all cheap ones." Acer did not provide any outlook in its statement released after close of trading hours, but it has previously said it expects this year's second-half shipments to jump up to 40 percent from the first half.

Pioneered by Acer's crosstown rival Asustek in 2007, netbooks have been a phenomenal success since then. But competition is heating up as more companies, including cellphone giant Nokia , enter the segment.

Acer's net profit fell to T$2.3 billion ($70 million) in April-June versus T$2.9 billion a year ago, partly hit by the harsh economic climate and lower profits associated with low-cost netbooks. The company was expected to report an average net profit of T$2.34 billion in the second quarter, according to analysts polled by Reuters Estimates.

Revenue also fell, slipping 5 percent to T$119 billion as Acer needs to sell as many as six netbook PCs to make the same amount of money as it would from a single regular notebook PC.

"Honestly, the results are very ordinary and even look like they missed it somewhat," said Vincent Chen, an analyst at Yuanta Securities. "The key right now is how they perform in the coming months, especially with Windows 7 coming up." Windows 7 is Microsoft's next-generation operating system, and the launch of any such software typically boosts PC sales.

Acer's weak results come even as it was the strongest performer by shipments among the top five PC brands in the second quarter. IDC estimates its shipments to have risen nearly 24 percent from a year ago, stronger than market leader HP.

Analysts have warned the increasing popularity of netbooks could hit sales of regular laptops, something Acer does not expect to happen. Acer shares have jumped about two-thirds so far this year, outperforming a 47 percent rise in the benchmark TAIEX share index.