Amid PC Industry Famine, Gateway Restructures

What if everyone who already owned a car suddenly stopped buying new ones?

What if everyone who already owned a car suddenly stopped buying new ones? Thats almost the situation facing the PC industry, which has been belching such a miasma of bad news that even Microsofts launch of Windows XP next month is not expected to help clear the air.

"Windows XP is going to be a lot less of a stimulus than Microsoft thinks," said Roger Kay, IDCs director of client computing. The unnerving thing for PC makers is that its the only foreseeable stimulus on the horizon.

Gateway has been the most recently — and most deeply — wounded of the major PC players. Trying to shore up its losses, the company said last week that it will lay off 5,000 employees, or one-fourth of its work force, as part of a restructuring that CEO Ted Waitt said will return the Gateway to profitability in the fourth quarter. The PC maker also said it will pull out of Asia-Pacific regions and is considering leaving Europe.

In the U.S., where Gateway will now concentrate its efforts, PC sales for the year will be down at least 10 percent from 2000, according to IDC, and are not expected to turn around until at least 2003. PC sales declined year over year for the first time in history in the second quarter, IDC reported recently.

The awful market conditions have been exacerbated by an ugly industry price war, initiated by Dell Computer, that has eroded slim profit margins to practically nil.

Analysts believe the PC industry, like the auto industry, eventually will sustain only a limited number of competitors, making the sector ripe for consolidation in the coming months.

"Its now a fight to see who can batten down the hatches strong enough," said Rob Enderle, a Giga Information Group research fellow. "When this is all over, some of these [PC makers] either will not be independent or will not be in business."