Gateway: To Buy or Not to Buy? That is the Question

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The question of whether or not Gateway PCs and laptops are a good buy for the enterprise just became even cloudier with the recent announcement of the company's financial troubles.

Gateway Inc. announced late last week that it is closing its U.S. retail stores in a push to increase the company's profitability. That means the hardware company is closing 188 stores just in the U.S. and laying off 2,500 people.

Will this move help the struggling company shave costs and better position itself to serve enterprise customers? According to analysts, the jury is still out.

''They're clearly struggling,'' says Gordon Haff, an analyst with Illuminata, a Nashua, N.H.-based industry analyst firm. ''The retail stores have been a fiasco from the get-go. Gateway put itself in a position where it had a costly asset that none of its competitors had to have. The thinking was that it gave them a competitive advantage. But at the end of the day, it wasn't worth the cost.''

And costs -- or more to the point, lack of sales -- has been a big issue for Gateway.

The hardware market has seen its share of troubles over the past few years, with a sagging economy and slashed IT spending chipping away at sales of desktops, laptops and servers. Several companies lost market share over the past three years, but Gateway was one of the largest share losers.

Roger Kay, vice president of client computing at IDC, a major analyst firm based in Framingham, Mass., notes that in terms of unit shipments, Gateway is in fourth place in the hardware arena, coming in behind Dell, the leader, Hewlett-Packard and IBM. But it's the amount of lost shares that is most telling, says Kay.

Between 2000 and 2003, Gateway's U.S. commercial business dropped 37 percent. The company's enterprise sales don't sound so bad when you compare them with its individual consumer sales. In the same time frame, Gateway's consumer business plummeted 65.4 percent.

In the same three years, Dell's commercial business grew, while HP remained relatively stable, and IBM grew slightly. Other share losers, though, include Apple and Toshiba.

''Where does it go from here,'' questions Kay. ''Gateway has made every indication that they will remain in the market. The company is repositioning itself to different segments, through different channels.''

And Kay adds that cutting off the cost-heavy retail stores was a very positive move.

''Wall Street has been pretty happy by the recent announcement to cut all the stores,'' says Kay. ''Commercial customers are perfectly happy to do business directly with Gateway. Yes, their commercial business has declined, but it's still better than their retail stores.''

Both Kay and Haff say it's not a bad move for companies to buy Gateway desktops and laptops.

''I think people shouldn't be afraid to buy them because they're likely to remain in business for the relevant period of time,'' says Kay. ''They are embarking on a new strategy of bringing in more integrated products, so they're effectively improving their offerings... If they did go out of business, they'd have to sell off their maintenance contracts, and you'd be set for the life of your systems.''

M.J. Shoer, president of Jenaly Technology Group, a Portsmouth, N.H.-based outsourced IT firm, says it's not so much a matter of IT administrators being afraid to buy Gateway -- they're just not all that interested.

''It's not even a consideration, says Shoer, who adds that less than 1 percent of his corporate customers even have Gateway machines. ''When they need new hardware, they talk about Dell and HP, and Sony in the laptop area. Gateway doesn't even come up.''

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