Gateway Touts PC Bang for the Buck

By John G. Spooner  |  Posted 2006-06-29

Gateway Touts PC Bang for the Buck

Gateway intends to return to its roots as an up-market direct-seller of PCs.

The Irvine, Calif., PC maker, whose CEO, Wayne Inouye resigned on February 9, continues to sell PCs via retail and direct to businesses and consumers.

However, on June 29 it announced a simplified direct-to-consumer product line, including fewer, more richly configured desktop and notebook models starting at $799 and $999, respectively.

The new product line signals the beginning of a three-phase plan under which Gateways top management, now lead by interim CEO Rick Synder, intends to bolster the companys direct-sales business while continuing to move ahead with its retail strategy, where it sells PCs under the eMachines and Gateway brands.

Once the main source of its revenue, direct sales have withered in recent times as Gateway pursued relationships with retailers.

What do Gateways latest plans businesses PCs look like? Click here to read more.

"Were going back to the basics," said Bart Brown, Gateways newly-appointed senior vice president for direct sales. "In the recent past, we had been trying to figure out the price game with Dell and [Hewlett-Packard] and retail. Thats not a game Gateway can win. We dont want to sell Celeron [desktops] without a monitor for $300."

Brown said that Gateway plans to return to catering to PC enthusiasts by offering aggressively priced PCs fitted with dual-core processors, Microsofts Windows XP Media Center Edition operating system and Office Basic Edition 2003 software.

Its desktops also come standard with digital flat panel displays, while notebooks come with widescreen displays.

Following Inouyes departure, Gateway executives admitted a direct-sales deficiency and signaled plans to bolster direct by beefing up its business and consumer-oriented offerings there.

It has since appointed James Burdick as its senior vice president for professional products.

Starting on June 29, Gateway began offering desktops starting at $799, including flat panel monitors.

One model, its Gateway DX310, comes with an Intel Pentium D 805 processor, 512MB of RAM, a 160GB hard drive, a multi-format DVD-writer drive, speakers, a nine-in-one memory card reader and a one-year warranty for its $799 price.

Free upgrades add Pentium D 930 and a 17-inch monitor, the companys Web site shows.

Its notebooks now start at $999. One model, the Gateway NX260 includes an Intel Core Duo T2050 processor running at 1.6GHz, 1GB of RAM, an 80GB hard drive, along with a combination CD-RW/DVD-ROM drive, Wi-Fi wireless and a 14.1-inch widescreen display.

Its NX560 offers a larger 15.4-inch screen for the same starting price.

Next Page: Offering customers more.

Offering Customers More

By changing the way it approaches consumers, Gateway hopes to offer customers more of what they want, while eliminating any potential for its direct business to interfere with its retail channel.

But most Gateway direct-sales customers arent looking for low-price machines, Brown said. Instead, the companys average price for a PC sold direct, which is about $1,500, shows that most are buying fairly high-end machines.

"We dont think were going to scare anyone away. Were just going to take them to where theyre going to end up anyway in a more orchestrated fashion," he said.

Still, the move up market—and Gateway is catching up to well-known PC enthusiast-focused companies such as Alienware and Falcon Northwest—is something the company has tried in the past.

During late 2001, for example, it bundled flat panels with some PC models in an effort to differentiate from competitors. Although it eked out a profit for the fourth quarter of that year, revenue was substantially lower in part because fewer customers purchased its more expensive machines.

The companys latest effort is more likely to succeed however, executives said.

The company can still point customers interested in its low-cost machines to retailers that stock eMachines desktops for less than $400 after rebates.

It will also offer somewhat lower-priced models, including a $699 notebook and a $599 desktop, via its telephone sales channel. Callers will have to ask for those models, however. They will not be available through Gateways Web site.

"Whats different now is we have this huge retail channel where you can still buy aggressively priced machines" from Gateway, Brown said.

"I dont think well lose that customer. I think if we have channels that complement each other… its a winning model."

Still, even though it has engineered a successfully entry into retail, Gateway must carefully execute its new plan, analysts said.

"The strategy—getting back to your roots—makes sense," said Richard Shim, analyst at IDC in San Mateo, Calif.

Gateway targets services at the midmarket. Click here to read more.

However, "The landscape is also a lot more competitive [now]. Prices are more competitive. I think its a step in the right direction, because clearly the other way wasnt working to their satisfaction. But its got to be more than we are going to refocus on our enthusiast audience."

But the pricing strategy is only the first part of its latest plan. During a second phase, Gateway intends to introduce new designs and bump quality, introducing products that gain more attention from enthusiasts.

Although it intends to stick with Intel processor PCs at the moment, Brown said.

Gaining more attention means Gateway will roll out new PC models. It will also launch new digital flat panel displays, releasing a 24-inch model and a 30-inch model before the end of 2006, Brown said.

"In the end game, we fancy ourselves competing with Falcon Northwest and Alienware," he said.

"If you think about where we need to be to do that, we need to make significant investments in our products…and in our marketing to that [enthusiast] audience. Its going to take us the better part of this year to get there."

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