OREANDA-NEWS. Fitch Ratings has affirmed Taiwan-based Acer Inc.'s (Acer) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'BB-'. The agency has also affirmed Acer's National Long-Term Rating at 'BBB(twn)'. The Outlooks are Stable. The agency has simultaneously withdrawn all the ratings.

The ratings have been withdrawn as they are no longer considered by Fitch to be relevant to the agency's coverage because Acer has no international public bonds outstanding and is no longer considered essential for our peer analysis or sector commentary. Fitch will no longer provide rating or analytical coverage of this issuer.

A full list of rating actions is at the end of this Rating Action Commentary.

KEY RATING DRIVERS
Deleveraging Continues: The Stable Outlook reflects our expectations that Acer's funds flow from operations (FFO)-adjusted leverage will improve to below 4.0x in 2016 (2014: 4.3x), through further debt reduction and disciplined capex. However, free cash flows are likely to turn negative due to weak cash flow generation on subdued PC demand, and ongoing investments in working capital and capex.

Weak Market Position: Acer's relatively weak position in the highly competitive PC market will continue to constrain its ratings. We believe the company will face challenges in defending its market share because of its significant exposure to weaker PC segments, such as consumer and emerging markets. Acer's global market share by unit sales fell to 7.0% in 3Q15 from 8.5% in 3Q14, according to technology research company International Data Corp. (IDC).

Subdued Demand: Acer, like most PC makers, will continue to have to cope with the slowing demand in emerging markets, currency swings, and uncertainty over demand for PCs running the new Windows 10 operating system. The threat of substitution by mobile devices remains, although competition from tablets has eased. IDC expects worldwide PC shipments to fall 8.7% in 2015 (2014: 3.6% decline) and demand to stay subdued until 2017.

Focused on PCs: Acer's near-term prospects will hinge on its ability to raise revenues in a tough PC market. Fitch believes it is unlikely that the cloud strategy - branded under Build Your Own Cloud (BYOC) - will transform the company from a hardware, PC-centric firm in the next three years. We expect Acer to make small investments to support the build-out of its BYOC strategy.

Low Profitability: Fitch believes it will be difficult for Acer to significantly improve its profitability above the breakeven level given the current subdued PC demand environment and Acer's weak competitive position. However, we think Acer's profit-focused strategy and the gradual shift to the more profitable Chromebooks and 2-in-1 segment as well as gaming notebooks and monitors should help stabilise its profitability. Our forecast assumes operating EBIT margins will remain below 1% (9M15: 0.3%).

LIQUIDITY
Adequate Liquidity: Fitch expects the company to maintain a net cash position, which has become increasingly important to partly offset the company's weak cash generation. Acer's cash balance of TWD36.4bn at end-September 2015 - inclusive of the TWD5.4bn raised from new equity in 1H15 - will comfortably cover its total debt of TWD11.8bn.

KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for the issuer include:
- Declining revenue to persist through to 2016;
- Operating EBIT margin below 1%;
- Disciplined annual capex of 0.1%-0.2% of revenue in line with historical trends;
- No dividends in 2015 and 2016.

RATING SENSITIVITIES
No longer relevant as the ratings have been withdrawn.

FULL LIST OF RATING ACTIONS
Acer Inc.
Long-Term Foreign-Currency IDR affirmed at 'BB-'; Outlook Stable
Long-Term Local-Currency IDR affirmed at 'BB-'; Outlook Stable
National Long-Term Rating affirmed at 'BBB(twn)'; Outlook Stable
All the ratings have been simultaneously withdrawn.