Acer to Produce Netbook Using Google Operating System

Acer Inc. said it will launch a low-cost computer that runs on Google Inc.'s Android operating software, a victory for the U.S. Internet-search giant in its battle with Microsoft Corp.

Taiwan-based Acer, the world's third-largest personal-computer maker by revenue, on Tuesday said it will start shipping the new netbook PCs in the third quarter. The move comes as Acer and other companies, including larger rivals Hewlett-Packard Co. and Dell Inc., try to diversify their offerings of netbooks -- small, inexpensive laptop computers that are increasingly popular.

Microsoft's Windows software remains by far the most widely used operating system for PCs, but the growing use of mobile devices is threatening to erode that dominance. Google unveiled Android last year for smart phones, an area in which Microsoft has struggled to replicate its success with Windows. In recent months, the Google software also has made apparent inroads into the PC segment, with several other major companies, including H-P and Dell, indicating they are considering using Android in netbooks. Acer is the first major PC maker to formally unveil an Android-based netbook.

Speaking at the Computex trade show in Taipei, Jim Wong, Acer's global president of IT products, said the Android operating system offers "incredibly fast wireless connection to the Internet." But he said Acer will continue using the Windows operating platform. "We have to make sure the old choice [Windows] doesn't disappear," he told reporters.

Mr. Wong declined to provide a sales target for the Android-based notebook, but Acer said it believes the operating system will contribute "significantly" to the growth of the world-wide netbook market.

In late April, Acer President Gianfranco Lanci said the company expects to ship between 10 million and 12 million netbooks in 2009, and a total of 32 million to 35 million notebooks, including netbooks. While margins are typically low for netbooks, sales have been better than expected because of the global economic slowdown, which has prompted price-conscious consumers to look for bargains.

Mr. Wong said demand for personal computers is improving slightly in the second quarter compared with the first quarter but noted that it is too early to say that the industry has hit bottom. "I don't know if [the first quarter] is the bottom...it's hard to tell," he said.

The executive's comments echo similar remarks from Dell. Brian Gladden, Dell's chief financial officer, recently said the company has yet to see "a bottom" to the prolonged slump in technology spending.

Still, in a sign that market conditions may be improving, Jonathan Tsang, vice chairman of Asustek Computer Inc., which makes PCs and computer motherboards, said its second-quarter profit margins are improving from the first quarter and PC component shortages are easing.

Asustek's first-quarter gross margin shrank to 9.1% from 21.5% a year earlier.

Asustek Chief Executive Jerry Shen had said in late April that component shortages were raising production costs and squeezing margins in the second quarter.

When asked whether the company may see strong second-half demand this year, as the technology industry typically experiences, Asustek Chairman Jonney Shih said: "It's the hardest question. I can't say."