Gateway Sharpens Enterprise Focus

The PC maker says its enterprise business will be a key component in its push toward overall profitability.

When Gateway Inc. bought eMachines Inc. for $290 million in March, there was concern among enterprise users that the PC maker was going to exit the commercial business, focusing instead only on consumers.

That is not going to happen, said Tim Diefenthaler, director of enterprise servers and storage products at the Poway, Calif., company.

Over the next few months, Gateway will roll out a host of laptops, desktops and servers, which will not only offer the latest technology but also streamline the companys product offerings.

That comes as good news to David Kirkland, IT director at MasterCraft Boat Co., which, over the past three years, has standardized its infrastructure on Gateway computers.

"In the beginning, you think, Whos going to be the winner in all this—[Gateways enterprise business or eMachines consumer PC business]?" said Kirkland in Vonore, Tenn. "Theres some questions that come into play. But the direction theyre going—the consumer business is really eMachines, and Gateway is the business side—is a good split."

Kirkland said his primary concern when Gateway bought eMachines for $290 million in March was that Gateway would stop keeping up with the technology curve in its commercial business. But Gateway officials said that wont happen. Gateways enterprise business makes money, an important fact for a company pushing to return to profitability next year after several years in the red.

"The [new] management knows that its important to have this enterprise business," Diefenthaler said in an interview with eWEEK. "This is a hidden gem that really can help them grow the balance sheet."

Gateways enterprise business makes money, and will be a key component in the companys push toward overall profitability, said spokesperson Ted Ladd. President and CEO Wayne Inouye is pushing to return Gateway to profitability in 2005.

In the second quarter, Gateway lost $339 million on $838 million in revenue.

The company has undergone dramatic changes in the four-plus months since the purchase. During that time, Inouye—the former eMachines CEO who took over the top post from Gateway founder Ted Waitt—has closed the 188 Gateway retail stores around the country, streamlined the management structure, initiated plans to shrink the payroll from about 7,500 at the beginning of the year to less than 2,000 by the end of 2004, and shut down a facility in Sioux Falls, S.D.

In addition, Gateway recently entered into a deal with Best Buy Co. Inc. to sell Gateway-branded products on shelves alongside eMachines computers, and also is negotiating with other retail outlets.

/zimages/4/28571.gifClick here to read about Gateways move out of the consumer electronics space.

In much the same way that the company as a whole is pushing to increase efficiencies, the same can be said for the enterprise products group. Gateway will re-emphasize its focus on small and midsize businesses, officials said. Gateway currently has some large Fortune 500 customers but will concentrate now on SMBs and the public sector.

Over the next few months, the company will roll out new laptops, desktops and servers, which will not only offer the latest technology, but also enable Gateway to streamline their product offerings. The company also is going to take advantage of the supply chain efficiencies developed by eMachines and the ability to share common parts to help drive down the pricing of many of these products, or enable the company to offer more features for similar prices as older models.

For example, Gateway currently offers nine models in its line of mobile PCs—everything from a slate tablet to thin-and-lights to desktop replacements. The new lineup, which will roll out throughout the rest of the year, will feature seven laptops, including a new thin-and-light model, the M320 Series, and a new desktop replacement notebook, the M520 Series. The new systems will first roll out to consumers, while models for businesses—which offer such features as networking capabilities—will start appearing in the fourth quarter, said Ken Loyd, director of business marketing at Gateway.

The systems will offer everything from Intel Corp.s consumer Celeron line of processors to its high-end Pentium 4 chips and will range in starting price from $699 to $1,400. By early 2005, biometric capabilities will be incorporated in all of Gateways notebooks, Loyd said. The company currently offers embedded biometrics in its 450+ notebooks.

Next page: Desktops and servers.