Gateway Shifts Back to Personal Computers
September 13, 2004 4:28:00 PM ET
By Franklin Paul
NEW YORK (Reuters) - Gateway Inc. (GTW) on Monday said it would return to its roots as a personal computer company, backing off on an aggressive strategy of expanding into TVs, digital cameras and other gadgets in a move to return to profitability.
While it will continue to sell consumer electronics like digital music players and big-screen TVs, Gateway, which earlier this year bought low-cost PC maker eMachines, will expand its presence in big-box electronic retailers and grow Internet and phone sales of hardware and services to government and corporate markets.
``Our focus right now is to stick to our core business,' Gateway Chief Executive Wayne Inouye told analysts at a meeting in New York.
The new strategy completes a shift spearheaded by Inouye, the former CEO of eMachines, to shrink Gateway's size and improve margins through cost management. Gateway already has a deal with retailer Best Buy Co. Inc. (BBY) and others.
Not long after he took the helm at the company, after Gateway completed its purchase of eMachines in March, Inouye closed Gateway's remaining 188 retail stores and promised to cut marketing expenses and work force.
``We have to have a very aggressive minute-to-minute focus on keeping costs low,' he said on Monday.
Irvine, California-based Gateway faces formidable rivals in Hewlett-Packard Co. (HPQ) and Dell Inc. (DELL), which already have extensive ties with many of the world's biggest corporations.
But Inouye said Gateway can score as a low-cost alternative to those players. The company also sees growth opportunities in international markets, including Mexico, Japan, Germany and France.
CONNECTIONS TO RETAIL MARKET
Gateway said it will continue to sell so-called ``convergence' devices -- digital entertainment gadgets that connect with PCs, such as MP3 players. It will also sell liquid crystal and plasma televisions over the phone and the Internet and to the professional market.
Analysts said at the meeting the changes this year were necessary and that the management team Inouye brought with him from eMachines carried connections to the retail market that founder and former Chief Executive Ted Waitt had lacked.
``They've lost money for four years, so something had to give,' said one analyst who asked not to be identified. ``They brought in a guy who would make the cuts and he brought Best Buy with them.'
Rod Sherwood, Gateway's chief financial officer, told Reuters the company will remain in the consumer electronics market, where it sells a range of products. Waitt had embarked on a strategy to become a wide purveyor of gadgets.
``PCs are the primary focus,' Sherwood said. ``But at the same time we will continue to offer our convergence products.'
The company also backed the third-quarter and revenue and operating loss forecasts it gave in July. It reiterated that it sees revenue of $900 million to $950 million and a loss before items of 7 cents a share to 9 cents a share.
Analysts now expect Gateway to post a third-quarter loss of 8 cents a share on revenue of $941.8 million, according to Reuters Estimates.
Shares of Gateway closed down 12 cents, or 2.5 percent, at $4.70 on the New York Stock Exchange.
(Additional reporting by Duncan Martell in San Francisco)
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