Gateway Rethinks Its Consumer-Electronics Future

Updated: The company is paring down its consumer-electronics product lines, and a senior vice president says it wants to focus on building "products that are complementary to the PC business."

Gateway Inc. is in the midst of paring down its consumer-electronics product lines, according to company officials, potentially leaving the bulk of its consumer-electronics business out in the cold.

Following the companys merger with eMachines Inc. in March, Gateway said it would slim down its PC product lines. Now, the company is also "defining" its CE (consumer electronics) strategy, which for now appears to rest solely with its digital-television line.

San Diego-based Gateway officials emphasized that the company hasnt reached a final decision on the fate of its CE lines. Lisa Emard, a spokeswoman for Gateways consumer division, said the company is in a "simplification" process.

The company is looking first at its highest-priority businesses. "We are in the midst of re-evaluating our consumer electronics line," Emard said.

"The focus for us is on the higher-volume categories, such as PCs and digital televisions. Were in the midst of defining it right now. Theres still a lot of work we have to do internally; its still being finalized as we speak.

"Were selling a wide range of products, as you know," Emard added. "The main emphasis is on PCs, DTV [digital television], servers and storage."

At the AlwaysOn conference in Palo Alto, Calif., on Wednesday, a senior Gateway executive said the company is focusing on "PC-centric products" as part of a "transformation" of Gateway.

"Theres a couple of things," Ed Fisher, senior vice president of product planning at Gateway, said in an interview late Thursday. "Our core business is desktop PCs, both desktop and notebook products, and a server business as well. First and foremost, we need to provide value to those products in the marketplace."

"We want to build products that are complementary to the PC business," Fisher added. Consumer Crossover

Slashing its consumer-electronics products would be a harsh blow for Gateway, which in 2003 remade itself into a branded electronics retailer in an attempt to diversify its product line.

Ted Waitt, the companys chairman, said the combination of Gateways CE business and retail stores would complement the companys PC business, creating a "digital lifestyle" that would converge computers and consumer electronics.

Gateways actions were soon followed by companies such as Dell Inc. of Round Rock, Texas, and Hewlett-Packard Co., which have since added televisions and other CE peripherals in a bid to attract new customers.

Since then, Gateway has continued to struggle. In September 2003, it closed a Virginia manufacturing plant, eliminating 400 jobs. Following the announcement of the eMachines merger, the company said in March that it would cut 2,000 jobs in the coming months and later said it would cut another 1,500 jobs by the end of the year.

In April, Gateway said it would close all of its retail stores, just a few days after HP filed suit against Gateway for patent infringement.

/zimages/5/28571.gifClick here for the latest on the ongoing patent dispute between Gateway and HP.

"If this is true, then in one sense its unfortunate, given their emphasis and their message concerning the CE industry prior to the acquisition of eMachines," said Alan Promisel, a research analyst with IDCs client computing team in Framingham, Mass. "Their message was all about the digital home lifestyle."

Next Page: Some CE products are nearing the end of their life cycles.