Gateway Puts On Its Game Face

By eweek  |  Posted 2003-11-17

Gateway Puts On Its Game Face

Gateway Inc. is in reinvention mode—still. The fact is, it hasnt been out of that mode for the past three years. Thats when the companys founder, Ted Waitt, jumped out of semiretirement to rescue the Poway, Calif., company from the tech crash that saw its stock free-fall and profits evaporate. Since then, Waitt, who started Gateway in North Sioux City, S.D., 18 years ago, has been on a tear to revitalize the companys offerings and attract new classes of users. He sat down with Executive Editor/News Michael R. Zimmerman last week in New York to discuss Gateways SMB focus, among other things.

The SMB [small- and midsize-business] market is a big focus for Gateway. But what does Gateway offer the SMB that the SMB customer cant already get from the local VAR, where they tend to turn?

A lot of them go through local VARs, white box people, etcetera, etcetera. It depends if the local VAR is selling somebody elses product or a combination of white boxes, plus everything else. We can offer a more innovative product. We have product innovation across our Profile 5 [all-in-one PC]. … We announced that were going to announce [this] week a serial ATA device, a NAS device—Gateway-branded rather than a partnership with somebody else—and kind of change the value equation particularly on the pure storage market. So were bringing enterprise capabilities to the small and midsized business customer. So its innovation. Its accessibility. Accessibility both to our people as well as to, we can bring in vendors, we can partner with VARs. We can bring a whole new level of technological sophistication to the SMB customers.

I was told by the manager of the New York City Gateway store that many of the SMB customers coming in are not starting from scratch, but rather refurbishing or updating their systems or networks.

No theyre not starting from scratch. They usually have a bunch, a hodge-podge of things, and they want to clean-slate it.

At that point, is Gateway doing much in the way of consulting?

Not as much at the stores. What we can do in the stores is in a lot of cases some stores will have the capability to do more consulting to configure the whole solution. A [Gateway] person in a store, if they have an opportunity they cant deal with themselves, patches him right into a centralized person, who can then bring in a whole variety of resources, be it server technical specialist or more of an engineering salesperson.

All within Gateway?

All within Gateway, yes.

Is there an effort to include that as part of the Gateway experience?

Well do more, rather than one to one. Just stop in, were a one-to-many in the stores. Well be able to talk intelligently with that person. Im talking a consistent experience across all of our stores. Because weve had business salespeople in the store. We struggled finding the best model for what the maximum efficiency to have a business expert in each store versus kind of a generalist, that is somebody who is more of an expert who they can point to and say this is our business person that could help you and not necessarily the person who would fully manage that account over time.

So, its really a teamwork fashion where those people in the store can call on every resource within Gateway to basically give that customer everything they need to custom design a solution for them.

Next page: Building a relationship with SMB customers.

Consulting Charges

But youre not monetizing that.

Were not charging for that consulting up front, no.

Is that something youd be interested in?

Its actually not a bad idea and something we should think about. (Laughs) Ill tell you what the SMB customer wants. They want a relationship. And they want someone they can rely on.

But theres not a program in place where youll walk through a potential customers office.

Well go and do a site survey. We do site surveys right now.

And thats free?


Is your focus on the SMB market an admission of sorts that, for whatever reason, Gateway couldnt penetrate the enterprise?

No, I think we just see a bigger opportunity with the SMB marketplace. I mean weve been focused and have had multiple SMB plans over the years that have had varying degrees of success. Its not an easy thing to really hit our market because it is very fragmented. The white box people have very strong relationships with these customers in a lot of cases. And its harder to find something that is scalable and replicable to cover such a big market as the SMB. But it ties more with our brand and more with our product strategy and our product capabilities and just where we are in the overall general business market.

You reaped savings of $70 million in Q3, and expect to save about $95 million in Q4. Where will that come from?

A lot of it is from our new distribution logistics model, a brand-new whole service model thats been put in place. Through product designs; its the service side. Its everything on a cost-to-goods, which is everything from material costs to manufacturing costs, to the way we cover our fixed costs. Weve taken a lot of fixed cost out of the business. So, kind of across the board.

You closed another manufacturing plant earlier this year and are left with the original plant in North Sioux City. Given the attachment you have to that area, and the impact youve had personally on the area, can you imagine ever seeing that close?

No. We have a lot more than just manufacturing there. We have a lot of sales there. They really understand the business. Though weve scaled that facility back, we still have a lot of people there. Its kind of a nerve center of Gateway, from an operational standpoint and a sales standpoint.

Next page: AMD vs. Intel chips.

AMD vs

. Intel">

Last year when you announced Gateway would no longer use AMD [Advanced Micro Devices Inc.] chips in systems, AMDs CEO Hector de Ruiz told me that Intel [Corp.] had pressured you into taking such a stand. He said, "If you were to talk to Ted Waitt at Gateway and ask him, Whyd you do that? and if hed really tell you why, its a question of him being bribed to do it. … Now … a company has to listen to huge amounts of money." How do you respond?

I think "bribe" is a strong word. The word "bribe" is not the technically correct word. And thats the core, the word I disagree with there.

Now … Intel will tell you that the best thing to ever happen to Intel was AMD. They keep Intel on their toes. Intel is a better company because AMD is around. And I think the world needs AMD to be strong. Ive always had a soft spot in my heart for AMD. I have a close personal relationship with [AMD founder and Chairman] Jerry Sanders. Hes a great man whos fought a valiant battle over years. And that whole things going to go on in cycles, they miss a product cycle here, they hit one here. They beat Intel here, they fall behind here. [AMD] missed a huge opportunity with the Hammer product that they missed. They had a window, and they didnt hit the product in time. That was a big problem for them.

So now AMD has the 64-bit architecture with the 32-bit backward compatibility. Do you have customers asking for this yet?

Not a lot asking for it, but it was a big opportunity for them if theyd come out earlier with it.

If they came out earlier.


So customers arent beating down your doors asking for it, at least it hasnt reached the point where youd reconsider?

No, no. But if theres a way we can create demand for their products and it would benefit the financials of the whole business wed do it. We got a great relationship with Intel, but last I checked, theyre not a shareholder.

Does that mean theres a possibility youd start using AMD products at some point?

If they got a better product at a better price and we think we could offer better value to our customer whenever approached, were not going to shut the door on them.

Things move in cycles between AMD and Intel. Weve got great relations but not any plans to do anything with AMD, but we dont have any plans to not do anything.

Next page: The status of the Gateway grid.

Gateway Grid

Whats the status of the Gateway Processing on Demand, the Gateway grid? Is it more large customers than smaller ones?

Its more, not necessarily large customers. Its customers with very specific applications. Customers that are interested in more biotech type companies, that have small processor-intensive type applications.

So its living up to your expectations?

Yeah, I think so. We put the network in place; it was not that expensive. We had all the PCs already. We used the PCs in the stores and elsewhere and off-time demand with those products to build this network.

Im wondering how much revenue youre able to drive from this.

Not a lot. But its something. But not a lot. It was more of a, I dont want to call it a test, thats not the right word. … This is really supplemental computing right now. [It will get] interesting when it really gets into the ERP applications and the core applications of a business. It could be used for smaller companies for supplemental power.

Youre reinventing the company you started in 1985. Where do you see Gateway in 10 years, and where do you see you in 10 years?

Good question. Ive always kind of separated myself from Gateway, so I dont know. Ill cross that bridge when I come to it. I see … Weve really built a business that is much more sustainable from where it is. Weve totally transformed the whole business. We have a much more diversified product line. The companys gone through some tough times over the last few years. But we reinvented the business. I feel like its a new Gateway. Gateways going to be a much broader diversified business 10 years from now. And Ill still be its largest shareholder. Whether Im the CEO who runs the business everyday or not, I dont know about that.

I committed to five years when I came back, Im three years into it now.

So youre not making any decisions yet.

I dont make any—I take it one day at a time. Im having fun. Im enjoying doing what Im doing. I gotta do something. Im not going to sit on the beach or anything.

Well youre close to it [in Poway].

Im close to it, but I did that for a year! See where it got me? It got me here—sitting in a hotel room talking to you!

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