Gateway's Waitt says cheap PCs are 'loss leaders'
Wednesday, November 12, 2003
By Fred Fishkin / Bloomberg News
Gateway Inc. Chief Executive Ted Waitt, whose personal-computer company has had losses in 11 of the past 12 quarters, said PC makers industrywide lose money selling the cheapest machines.
"The low end of the PC business, nobody makes any money -- not people that make them, not the people that sell them," Waitt said in a Bloomberg News radio interview from New York. "It's basically become a loss leader for the whole marketplace."
Waitt today introduced a digital music player and a DVD recorder and added new models of Gateway's televisions and cameras to help it diversify away from PCs. Computer maker Dell Inc. has said its PCs are profitable and that it doesn't have loss leaders, money-losing products used to attract clients to buy other, profitable goods. Hewlett-Packard Co. has forecast a profit in its PC division in its recently completed quarter.
The new products "are all significantly more profitable than PCs," Waitt said. "It doesn't take a whole lot of lift in all these broad categories" for Gateway to become profitable.
Waitt predicted the Poway, California-based company's consumer-electronics business will "double quarter-on-quarter." Dell, which has taken sales from Gateway in PCs, also is entering the consumer-electronics market by introducing products such as flat-panel televisions.
"I'm not afraid of competing with them," Waitt said. "We have a much broader product line."
Gateway shares fell 8 cents to $4.58 at 4 p.m. in New York Stock Exchange composite trading. They have risen 46 percent this year.
The PC maker has added almost 100 new products this year, Waitt said. Among those unveiled today are a $130 2-megapixel digital camera about the size of a large pack of chewing gum and a $300 MP3 player that can hold 5,000 songs. The company also said it will soon be shipping new storage gear for businesses.
Gateway makes money on PCs by adding software, services such as training and other peripheral products, Waitt said. The company will continue selling PCs, he said.
Gateway is outsourcing the manufacturing of many of its products to focus on marketing and selling over the Internet, by telephone and at its stores. That model will give the company an advantage over consumer-electronics retailers such as Best Buy Co., Waitt said.
"We control every aspect of the chain, from the product design to the quality of the product to how it gets fulfilled, how it gets displayed in our stores -- because it's our stores, our Web sites," Waitt said. "Our business model allows us to generate higher margins in these products than anyone."
