Gateway On The Ropes
Gateway is on the ropes. Although the company has over a $1 billion in cash, it competes with Dell and others on price. Gateway has chosen to modestly under-cut Dell on pricing as the company endeavors to reestablish its critical mass and regain market share. Analysts and industry watchers are skeptical that Gateway’s plan will work. The company can’t lose money forever.
Gateway needs more than low prices in order to regain customers and reestablish itself as a formidable competitor in the PC business. The company needs to bring innovation to the market. The kind of innovation that once made Gateway an international industry leader. The costs of operating the Gateway Country Stores and the long-term lease commitments weigh heavily on Gateway’s financials. Competing on price alone will only hasten the company’s exhaustion of its cash resources. Of the major PC makers, Gateway’s future is the one about which analysts and investors have the most doubt.
Through the end of 2001, Gateway continued to ship more units in the US than Apple, though Apple outsells Gateway when international units are added to the sales tally.
Is Apple poised not only surpass Gateway’s domestic unit shipments with the popular iMac but also to push the company out of business? Component cost increases and Apple’s strong position in the lucrative $1,000+ market adds up to a challenging fight for survival for the smallest of the Windows-based PC majors.
What are your thoughts?
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I don’t think Gateway can compete with Apple or Dell. Apple is better. What does Gateway have to offer?
This morning CalPERS, one of the nation’s largest pension funds, announced it will propose to Gateway shareholders that the company’s board be declassified. CalPERS Proposes Declassified Board For Gateway . This means CalPERS wants all of Gateway’s directors elected annually rather than have terms staggered over a number of years. Ostensibly, this would make it easier for shareholders to replace all of the company’s directors.
I really don’t think Gateway could have chosen a worse time for this strategy.
1: The competitive price wars have already saturated the market that Gateway wishes to hit.
2: The increased cost of components is going to hurt Gateway’s attempts at lowering prices beneath that of Dell and Apple.
3: The amount of disposable income for new systems is still low as the economy slowly continues to rebuild itself.
4: Intel and AMD have slowed their processor bumps, giving users a slight respite from the cycle of planned obsolesence. Until the Next Big Thing drives a wave of home users to upgrade their computers, I think the upgrade market is going to be fairly soft.
5: If Gateway manages to squeeze a profit from this new low cost model, Dell has the resources to force them lower, or steal customers at those price levels.
I really can’t see Gateway selling enough computers to make a profit at this low price model. By the end of this year, I’ll be surprised if Gateway has more than half their cash reserves remaining.
Instant Philosopher; Just add hot topic and stir.
Gateway was hammered pretty hard today 4/8 in the sell-off following IBM’s profit warning. GTW did not bounce back like the other hardware manufacturers in afternoon trading. They have a tough road ahead, no doubt.