Gateway: To Buy or Not to Buy? That is the Question

Apr 7, 2004

Sharon Gaudin

Gateway Inc. announced late last week that it is closing its U.S. retail stores in a push to increase the company's profitability. That means the hardware company is closing 188 stores just in the U.S. and laying off 2,500 people.

Will this move help the struggling company shave costs and better position itself to serve enterprise customers? According to analysts, the jury is still out.

''They're clearly struggling,'' says Gordon Haff, an analyst with Illuminata, a Nashua, N.H.-based industry analyst firm. ''The retail stores have been a fiasco from the get-go. Gateway put itself in a position where it had a costly asset that none of its competitors had to have. The thinking was that it gave them a competitive advantage. But at the end of the day, it wasn't worth the cost.''

And costs -- or more to the point, lack of sales -- has been a big issue for Gateway.

The hardware market has seen its share of troubles over the past few years, with a sagging economy and slashed IT spending chipping away at sales of desktops, laptops and servers. Several companies lost market share over the past three years, but Gateway was one of the largest share losers.

Roger Kay, vice president of client computing at IDC, a major analyst firm based in Framingham, Mass., notes that in terms of unit shipments, Gateway is in fourth place in the hardware arena, coming in behind Dell, the leader, Hewlett-Packard and IBM. But it's the amount of lost shares that is most telling, says Kay.

Between 2000 and 2003, Gateway's U.S. commercial business dropped 37 percent. The company's enterprise sales don't sound so bad when you compare them with its individual consumer sales. In the same time frame, Gateway's consumer business plummeted 65.4 percent.

See the complete story on Datamation.

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