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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.
“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.
Ending Life Cycles
In closing its stores, Gateway sold off some its inventory to retailer Best Buy, which sold Gateways remaining retail inventory at its locations. Gateway has also had a relationship with HSN, formerly known as The Home Shopping Network.
Gateway will continue to sell its entire range of consumer-electronics products, Emard said. But many of its CE products were announced in mid-2003 and are nearing the end of their life cycles, she said, adding that Gateway is evaluating each product to determine whether to continue the line.
If Gateway does concentrate its consumer-electronics thrust around its television line, the majority of the companys CE products could quietly disappear, including Gateways KAS-303 home theater system; the AR-230 wireless DVD recorder and Wireless Connected DVD player; its digital camera line; and its DMP-110 flash-based MP3 player.
Networking products could be seen as a key part of Gateways PC lineup, analysts said, and may remain as a product offering.
“I dont think they have great traction with that stuff,” Stephen Baker, an analyst with The NPD Group in Port Washington, N.Y., said of products such as Gateways home audio and MP3 players. “Its just another cheap brand name.”
Fisher declined to directly answer questions about the future of the companys individual product lines. “As you can imagine, we and our customers are looking at each one of these categories, which ones work for us strategically,” he said. “But it would be premature to talk about strategy because of our confidentiality agreements with retail customers.”
Some paring has apparently already begun. In August 2003, Gateway announced four new digital-camera models. Only one, the DC-T50, still remains under the “Gateway” heading on the companys digital camera page.
The Gateway DV-S20 Pocket Multi-Cam, announced in September, has “been gone for months,” Gateways Emard said. The SHD-5610 rear-projection television that Gateway announced last October also has disappeared. At press time, the only indication on Gateways home page that it sells consumer-electronics equipment was a link to a page displaying the companys plasma televisions.
According to Gateways Emard, the absence of products the company announced last year isnt significant. “Some of those products have sold out, some have been sold to retailers; some of them will be refreshed, and some of those will not,” she said. “If theres not something there, it doesnt mean its gone forever.”
One analyst said a source close to Gateway had reported that the company is closing down its plasma television line in favor of LCD displays, although he had been unable to confirm the information. Emard did not specify whether Gateway would concentrate on both of its DTV products—plasma televisions and LCD displays—or just one. Fisher, however, said the company is not shutting down its plasma TV line.
“Its not accurate. We have not stopped production of plasma,” Fisher said. “It may look that way from a supplier standpoint. Since we no longer have a retail store, we sell both the LCD and plasma products into [the] professional [market], state and local governments. But were evaluating these as well.” Emard added that the displays are also sold directly through Gateway.com.
Ironically, Gateways most successful CE strategy has been to follow eMachines lead and develop disruptive pricing models for its CE products. Gateways first plasma televisions were sold at hundreds of dollars less than its competitors, quickly boosting Gateways plasma televisions to the top of the CE world. But analysts said products such as DVD players and home stereo equipment face strict price competition and may have diluted Gateways brand.
“The thing is brand equity, I think,” said Toni Duboise, a PC analyst at Current Analysis, based in La Jolla, Calif. “To work in that area, youve got to establish brand share, mindshare. In anything that involves consumers–TV, stereo, anything CE–youve got to establish brands. One of the biggest ways to do that is battling using disruptive prices. Beyond plasma, I dont know that they found any success beyond that, really. No key products come to mind.”
“When you think of Gateway, you think of PCs,” Duboise said. “Thats their lead, and it behooves them to stay in the PC market.”
Jim Louderback contributed additional reporting for this story.
Editors Note: This story was updated to include information and comments from an interview with Gateway exec Ed Fisher.
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