Gateway Gets Bigger, Buys eMachines To Make #3 PC Maker

by , 10:00 AM EST, February 2nd, 2004

Most Mac users were introduced to eMachines when that company attempted to release an iMac knock-off in 1999 (see the pics). Apple quickly sued the company, eventually winning a court judgement that prevented eMachines and the actual maker of the unit, SOTEC, from selling the machines.

Since those days, eMachines has grown to become a major player in the low-end of the PC market, quietly selling boat loads of cheap PCs. Over the weekend the New York Times reported that troubled PC maker Gateway was purchasing eMachines, a move that will form the third largest PC vendor behind Dell and HP. This is a far cry from what industry analyst Andrew Neff predicted as far back as two years ago, when he said that Gateway itself would and should be swallowed by a larger competitor.

From the Times:

When the deal closes in the coming weeks, the combined company will become the third-largest PC maker in the American market, behind Dell and Hewlett-Packard.

Wayne Inouye, the chief executive of eMachines, will become chief executive of Gateway, and Ted Waitt, the founder and chief executive of Gateway, will remain the company chairman.

Industry analysts said the deal made sense because it gave eMachines, based in Irvine, Calif., needed capital and access to a larger product line and gave Gateway, based in Poway, Calif., needed access to the low-price PC market and chain stores where eMachines has established relationships. This is important to Gateway because its own retail stores have done poorly.

"This gives Gateway flexibility in dealing with its stores and a new distribution channel," said Roger Kay, an analyst with IDC, a market research firm. "The stores have been a potential albatross. They won't abandon the stores immediately, but now they have an exit strategy."

There's more information in the full article in the Times.

The Mac Observer Spin:

Many in the Mac community have longed for Gateway to go the way of the dodo bird, if, for no other reason, to take the negative spotlight away from Apple. Our contention has been that Gateway would survive, and this move likely assures that. eMachines brings market share and profits to Gateway, even as the company reworks itself into a consumer electronics company. Both elements are important to Gateway, and becoming a solid #3 behind market giants Dell and HP gives the company that much more clout.

We don't see this move affecting Apple's strategy or results, though the fact that two of its competitors have merged to form one stronger competitor is certainly something to watch.

New York Times Article