August 27, 2007 6:35 PM PDT

Gateway: From PC powerhouse to buyout bargain

Taiwan is a long way from Iowa.

But not as long as the distance that Gateway--the farm-raised, direct-sales PC company that grew into a major force in the U.S. computer industry--has traveled over the past two decades.

When Acer agreed on Monday to purchase the American PC maker, it wasn't shocking, since more than a few pundits would say Gateway's acquisition has been several years overdue. But at a $710 million purchase price, it's a comedown for a company that in 1997 was offered $7 billion to become part of Compaq Computer (which was eventually acquired by Hewlett-Packard).

A string of bad quarters, a revolving door into the chief executive's office and a schizophrenic business strategy have all led to Gateway's end as an independent company after 22 years in business.

The economic downturn that began in 2000 hit Gateway particularly hard, and it never quite recovered. Its identity as a company was constantly in flux after that, expanding through retail stores, delving in the world of consumer electronics, and acquiring low-end PC maker eMachines. But none of the new strategies quite worked.

"Gateway's basically been up on eBay for the last couple years."
--Samir Bhavnani,
analyst, Current Analysis

Now it will be up to Acer, a Taiwanese company, to resuscitate Gateway's heartland image and compete with the PC industry's dueling giants, HP and Dell.

To people who've watched Gateway's aimless adventures of the last few years, the new and focused management that will be at the helm is probably a good thing, and a long time coming. "Gateway's basically been up on eBay for the last couple years," said Samir Bhavnani, analyst at Current Analysis.

Founded in 1985, the company was built on a direct-sales model--a la Dell--which was initially very successful. Gateway grew 20 percent to 30 percent from quarter to quarter at its peak in the 1990s, making it the Acer of its day--the fastest-growing PC maker at the time.

In 1997, founder and CEO Ted Waitt rejected a proposed merger with Compaq, a deal that would have made Gateway the consumer arm of the world's largest PC operation at the time. After turning Compaq down, Gateway moved into software and services, financing and Internet connections.

But it wasn't as adept at selling its PCs in cow-print boxes directly to business. In 1999, Waitt resigned, and Jeff Weitzen took over as CEO. Then, in 2000, a steep decline in demand hit the PC industry.

Gateway's shipments dropped off quickly. The company went from moving 4.2 million units that year to 3.2 million in 2001, to 2.7 million in 2002, then to finally bottoming out at 1.9 million in 2003, according to data compiled by IDC.

Then an economic recession hit. Things got worse.

In 2002, Gateway began stocking its Gateway Country Stores--which were formerly just places for customers to place orders--with a variety of consumer electronics, such as cameras, video recorders and most notably, plasma televisions. The company made a huge splash in the nascent plasma business by undercutting other vendors by hundreds of dollars. The strategy was applauded at the time, but it was a bust.

"At one time, it was really focused on selling televisions and made a pretty big bet on the digital home...HP and Dell placed similarly large bets, but they also kept the focus on their PC business," said John Spooner, an analyst at Technology Business Research.

Switching gears, the company scooped up eMachines, a low-end PC maker, in 2004. By then, Gateway had lost much of its luster, and much of the leadership from the much-smaller eMachines was brought in to run the company.

"In reality, it seemed like eMachines was taking over Gateway, with its management structure, the way they marketed themselves and priced themselves," Bhavnani said. eMachines Chief Executive Wayne Inouye moved over to run Gateway, and seven of 13 of the senior vice presidents appointed after the merger also hailed from eMachines.

Later that year, the newly combined company announced that it would begin closing its retail stores, which also meant cutting more than a third of Gateway's workforce. It was then that Gateway began cropping up on retail shelves, and TVs and other consumer electronics were cut out of the picture to focus better on its core business, PCs.

Inouye left the company in 2006, and Chairman Rick Snyder stepped in as interim CEO. Later that year, J. Edward Coleman became the company's fifth chief executive in six years.

Finally, the company got back to doing what it does best--building PCs. By then, it was worth a tenth of its peak value. But there's still that brand, the biggest reason Acer wants the company. Acer will need it to compete in the U.S. market with Dell and HP.

"Who doesn't like the spotted dots, the cows, what they stood for, seeing (founder) Ted Waitt in the commercials with the pickup trucks?" Bhavnani asked. "It's a company that people rooted for."

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Gateway Inc., PC company, eMachines Inc., consumer electronics, Acer Inc.

38 comments

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E-Machines
Sorry about Gateway.... I'm currently using an E-Machines computer and it has worked flawlessly for me for over 3 years. No, its not a high end gaming device but it does pictures, music, email, Office products, everything most of us homeowners could ever want and does them very well. I'd buy another tomorrow but I sure bet I won't have to. This is opposed to the 2 year old Dell that I had that Dell wouldnt cover as well as the POS HP that I owned before. PC makers as well as Microsoft should wake up and realize that we need basic machines that perform as our fridges or stoves do: reliably and without having to constantly deal with issues. By the way, my son's MacPro Laptop is a wonderful machine......
Posted by momule (17 comments )
Reply Link Flag
Gateway Stores Deserved their Fate
Several years ago when there was a local Gateway store, I went
in to it with the intention of ordering a Gateway keyboard for my
computer (I forget but it might have been a Dell) because my
wife owned a Gateway computer and I really liked the feel of the
Gateway keyboard. But, when I walked into the store and asked
to order a keyboard, something I'd think any computer company
would be more than happy to sell me, they wouldn't even think
of it because I did not personally own a Gateway computer. That
pretty much said it all right there, i.e., any company refusing to
take my money for a product that they sell is simply idiotic.

That unfortunate incident aside, the primary problem with the
Gateway stores was that you could not walk out of the store with
a new computer. Instead, you had to order one and wait for it.
Come on now, couldn't they have at least stocked a few standard
configurations? How hard could that possibly have been? Instant
gratification means a lot to many consumers and Gateway just
didn't get it at all.
Posted by rjacksonb (2 comments )
Reply Link Flag
Re: not stocking inventory
FYI- Gateway did start stocking PC's and laptops with base configs in the stores. They didn't do it initially, but because of demand they did decide to do this.
Posted by Hernondo (4 comments )
Link Flag
Get your facts straight
This is absolutely not true. your local store might not have stocked any machines.

Two days after X-mas 3 years ago( I believe) I walked right into our local Gateway store in the St. Louis metro area purchased and walked out the door with a PC for my son, I also purchased a lifetime tech support contract for the same system at the same time.
It might not do us any good now but that is beside the point.

Whether I like them or not your "facts" are not true.
Posted by ganeal (2 comments )
Link Flag
Worked for Gateway in their heyday...
Was a phone & email tech in the late 90's. After 2 years...got out of the company. In the whole time I was there...VP's would come in every 6 months...have some hair-brain ideas...waste millions because they could...then move onto their next folly.

2 years later...most of the people I knew in the company had all ready lost their jobs at a moment's notice. Friend of mine who was there till the end told me that at the end...the managers were looking for any little reason to cut employees. From what they told me what happened afterward...these managers moved back to the Midwest to work in the Iowa/South Dakota offices.

Just hope these managers had the same thing happen to them as what they did to the employees.
Posted by furball123A (124 comments )
Reply Link Flag
Typical Profile
Lots of large corporations are top heavy with far too many useless overpaid administrators. All want to initiate some big visible change so they can be noticed and get promoted again. Then a new administrator follows behind them, and the cycle repeats.

Sometimes these changes are beneficial, but more often they are not. Some changes actually cause damage, and of them are very expensive.

It's a good recipe for corporate failure.
Posted by open-mind (1027 comments )
Link Flag
Ditto
I just hope Gateway doesn't go through with the merger. I'd hate to lost yet another american company. Shake up managment? Yes. Absolutly.
Posted by Renegade Knight (13748 comments )
Link Flag
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Posted by lyrics_ru (4 comments )
Reply Link Flag
Not surprised
I'm really not that surprised Gateway has been brought out. In 1999, my family got a Solo laptop. The machine was the worst I've used. For starters, the battery fell out in the bag, the hard drive went dead (it took two tries to fix), and it was generally slow (this was with Win Me!). Overall, I was not impressed. Since then, I've never brought Gateway again.
Posted by hoshie (15 comments )
Reply Link Flag
I feel sorry for you
You ran Windows Me
Posted by nmcphers (261 comments )
Reply Link Flag
Please don't touch eMachines...
Gateway joins the long list of American disasters in the high-tech world.

Sadly for this country and its citizens, yet another occurrence of the USA selling its soul to yet another foreign owner.

But as Gateway is absorbed into Acer, pray that Acer is smart enough to leave their hands off of eMachines.

Compared to IBM, Dell, Gateway, HP and a host of other American POS, eMachines was and is a fairly simple, well designed, well made and well priced American product.
Posted by josephrot (12 comments )
Reply Link Flag
the difference between copr and consumer products
Not a specific complaint to Gateway, Emachines, or any other but I wish everyone would stop with their consumer-line crap. HP, DEll, COmapq, IBM etc all have consumer models that they sell at Best Buy and other reatil outlets. They also have business models that they sell direct or through other channels. I can't tell you how many managers I have had tell me not to buy a Proliant (HP or Comapq) because the HP/COmpaq they bought retail was a POS. I can't disagree that what they bought was likely garbage, but the Proliant (IMO)is the best x86 server out there. Business PC's usually only have a base OS and no bloatware, 3 year warranties, and better quality components. Better support as well. Consumer models have 1 year warranties, loads of crapware/trialware and shoddy components. They also do heavy damage to their company's reputation. Prices barely vary anymore between the consumer and buiness models, so why on earth keep the consumer junk on the shelves. It only hurts the brand in question.

Just a rant... thanks for reading and please share your thoughts.

Tom
Posted by tgrenier (256 comments )
Reply Link Flag
Consumer junk
Packard Bell was another good example of this. Their corp and gov systems (developed in Sacramento) were top notch, but the consumer crap coming out of SoCal was embarrassing.

The company was often so badly ran we used to joke that it was just a front for an illegal drug operation. Unfortunately, management seemed to be heavy users of the product.
Posted by sreynard (54 comments )
Link Flag
I didn't even know Gateway was still around...
seriously.
Posted by frankwick (413 comments )
Reply Link Flag
Solution: SWITCH TO A MAC
This is good news. I hope Dell folds next. People and business
need to consider the wonderful and perfect world of Apple. More
Macs equal less spyware and a peace of mind. :)
Posted by internetworld7 (39 comments )
Reply Link Flag
YOY
Why Oh WHy spend 50% more (than the cost of a PC) for a MAC that does the same thing.

THEN, my Gateway cost 25% less than the same Dell &#38; HP (I did a like for like comparison &#38; paid about 24.something less for my Gateway).

When a PC is correctly configured &#38; the right software is used for the right purpose, it works BETTER than a MAC. And Ive been a computer user for 28 YEARS. And YES, I have owned a few Macs.
Posted by DryHeatDave (79 comments )
Link Flag
Yep, less spyware
Less spyware on a mac - right up until its user base gets big enough that there's the critical mass necessary for a virus to spread. At 3% or whatever of the market, there's just not enough of them to make a mac virus successful. Like other software developers, spyware and virus writers target the dominent platform!
Posted by LuvThatCO2 (187 comments )
Link Flag
What Spyware?
I run the usual anti-spyware apps about once every 3 or 4 months and have never found anything on my PC other than the usual cookies from Doubleclick etc. Every MAC shill hits on the time and work needed to keep a PC virus and spyware free, but I spend virtually no time at it and never find anything when the system does run a scan. Other than the initial configuration, everything runs and updates automatically with the result that I spend as I said , no real time at all. For those PC owners above moron level, there really should be no instances of spyware or virus infection. However, I can see why this is something that MAC shills will bring up constantly as APPLE did run those switch ads that pretty much said that if you're too dumb or stoned to run a PC, buy a MAC.
Posted by JohnnyL (89 comments )
Link Flag
Mac Attack
Yes if the lions share ever goes to MAC then you will see all of the same types of problems. Macs are just running under the Hacker radar.

P.S. Clear your head, gateways downfall or not has nothing to do with MAC verses PC just bad management DUH!
Posted by ganeal (2 comments )
Link Flag
Re: Solution: SWITCH TO A MAC
Why would someone in their right mind trade a cheap piece of prioritised junk for a over priced piece of prioritised junk.
Posted by HowardH47 (3 comments )
Link Flag
Revisionist History
Not regarding Gateway, which I couldnt care less about. But regarding the author's appearently lack of economic history. We were well on our way out of the so-called dot-com recession and into a very strong economic recovery by 2003, when the author claims a recession 'hit'.
Posted by LuvThatCO2 (187 comments )
Reply Link Flag
There goes the neighborhood!
Even had an Acer computer? Battery life on my new one is so short you cannot even run a benchmark on it when on battery power. So they got Gateway so that is the end of Gateway. So sad.
Posted by ramudd (32 comments )
Reply Link Flag
No Loss
My son purchased a Gateway computer in June 06 and in July 07 the motherboard failed. One month after the warranty expired. Circuit City and Gateway refused any help and Gateway does not even have a replacement part available to purchase! The box is useless unless we can find another board to fit. How many people would make a relatively expensive purchase of a product that is unable to supply replacement parts for at least a few years?
Posted by bogie1 (1 comment )
Reply Link Flag
It's just karma at work
I bought a Gateway PC in 1997 and it was awesome, after they replaced a bad monitor and a bad DVD drive. I had no real complaints... the computer was wonderful. I even recommended a Gateway to a friend in 2000 who bought a top-of-the-line system... and it worked great too!

Then they farmed out their "customer service" to India, which I learned firsthand after one of their driver updates crashed my computer. After the "customer service" guy rudely hung up on me I went to the Gateway store (a twenty-mile drive) where the district manager "found no record of my call to customer service." Great... call me a liar after I drive twenty miles for help. I even asked them to just plug my computer into their DSL connection (I was on dialup then and downloads took hours... literally) so I could get the new drivers installed, minus the one that crashed my PC. They said that their DSL connection cost them money and they wouldn't do it. Like my twenty-mile drive was free?

I vowed never to buy another Gateway... or to recommend them to my friends. I was happy with the new eMachine I bought after that and turned many friends on to them... and they were also happy.

Then Gateway bought eMachine so my next computer was a Compaq... which was later bought by HP. The Compaq is still running great and I have referred my friends to HP ever since. Gateway is dead and all my friends are happier without them. That is just karma at work.

As for Dell... I quit considering them after they switched to proprietary connections on their power supplies. I'll stick to established standards, thank you, so I can get replacement parts at a reasonable price.
Posted by mrmiran (19 comments )
Reply Link Flag
Re:It's just karma at work
I own three dells and have no problem what so ever putting whatever brand of replacement or add on parts I wish to use. all connectors match up perfectly.
Posted by HowardH47 (3 comments )
Link Flag
Loss of Focus
Gateway moved their headquarters from city to city. Is it any wonder that a loss of management focus was the result?

A company is only as good as the people who work for it. When there is a discontinuity in the "experience base", incoherence is the result. Put that in your bean pot and count it.
Posted by Whootowl (9 comments )
Reply Link Flag
Engineers?
As a new electrical engineer in the mid 90's I called Gateway HR to ask were I could send my resume. I was told that Gateway didn't have any engineers.
Posted by sreynard (54 comments )
Reply Link Flag
Drowning in alphabet soup
No engineers but plenty of MBAs and CPAs and CEOs likely to ask: what is the Any Key?
Posted by NoVista (274 comments )
Link Flag
c/net's annoying misdiagnosis
Gateway stopped giving good customer service. I stopped buying and recommeneding its computers. Dell now gives (Gold Support) good customer service. I buy and recommend Dell.
Pierrino Mascarino 323-276-8984 pierrino@mascarino.com
Posted by pierrino (3 comments )
Reply Link Flag
DELL GREAT SUPPORT?
I run a computer support business in New York. My company services, small to medium size companies. Many of my clients use Dell products, yet call me for service, even while still under warranty. I am told over and over that, Dell support is almost non exsistant, so they pay us for service.

H.M. Reed
Posted by hreed1 (1 comment )
Link Flag
loved my Gateway
my first PC was a Gateway and it was the best mainly because of the service but also because of the machine itself with the old dialup when you to wait for everything to happen on the old 386s. when my monitor went out, another one was on the way with just a phone call. the same for the CD-rom plus an installer come out without a penny in cost from us. I had lifetime telephone service so long as I had the PC for whenever I had any problems with the programs they installed. I loved this part as I was truly a novice at that time. my kids taught me all I knew. when my husband bought his HP, the hard drive was divided into two parts, smaller one for RAM and larger one for what we saved. of course they were reversed and it took an act of God to try to get them changed talking to someone in India, which actually never happened and we ended up with three sections instead of two. I gave up and took it to my local friendly Cheap Guys Computers and they had it fixed in just a few minutes and didn't even charge me for it. now I get my computers from them, custom made with whatever I want in them for a lot less than whatever you can get off of the shelf with that cheap "try it to see if you like it software" that costs too much in the long run. I stick with what I like and just transfer it from machine to machine and then upgrade when the new ones have proven themselves to have the bugs taken out. I am sad to see Gateway go but hopefully something good will come out of it.

I just wish that Cheap Guys made laptops. any recommendations.
Posted by blizotte (1 comment )
Reply Link Flag
Maybe now E-machine might build a decent computer
I have had to replace motherboards and power supplies in atleast 50 E-machines in past year. Seems only thing it takes is small power blip ( whether machine is connected to a surge protector or not)to cause both to fail. Maybe it will also mean the end to the prioritised juk that Gateway sells.
Posted by HowardH47 (3 comments )
Reply Link Flag
E-Machine (Gateway)
I have owned three Gateways and now a e-machine..If you really compare, for the (Average) PC er, It a .....DUH!
Posted by mrbillaaaa (1 comment )
Reply Link Flag
Former GTW Exec. Rips Current Management
A former Gateway Senior VP blames the GTW death spiral on 3 former CEOs ...

<a class="jive-link-external" href="http://www.pcpitstop.com/news/rob/rcheng0709.asp" target="_newWindow">http://www.pcpitstop.com/news/rob/rcheng0709.asp</a>
Posted by Francis Soyer (1 comment )
Reply Link Flag
Gateway acquisition
What else is new? Now that I know my new Gateway computer isn't going to get any better support than it already has (not), I can lose a little more sleep. I was never impressed with the company even before they had the cute little boxes. Now I have a few more boxes to store other useless items...
Posted by ghosty191 (19 comments )
Reply Link Flag
It's a sad time for all of us
I also worked for Gateway starting with the Windows 95 rollout. The amazing thing to remember about Gateway, was that at one time they were shipping $4 billion a year worth of Desktop PCs with no website or even an email address. In spite of an average unit price of $4,000, there was no consumer financing available save your Visa or Mastercard.

Customers would call in droves, wait an average of 5 minutes to talk to a sales agent, configure their system out of a computer magazine, and plop down four grand and wait an average of a month for delivery.

The success we had with that model cannot and should never be discounted. At one time we sold as many computers using this method in the us as all other retail channels combined.

I hope Ted Waitt, and the rest of us who poured our hearts into this remarkable company can live the rest of our days, heads held high, knowing we made a difference.
Posted by GTWDinty (1 comment )
Reply Link Flag
I couldn't have seen it any clearer when E-Machines absorbed Gateway the way they did, sneaking in from behind and grabbing the American company by the balls and escorting the offices to their playing field. Once they had closed the Gateway Country stores the next year my suspicions were confirmed. No Asian company will keep your American one stop shop open. That is not Their model. The Emachines computer I bought in 2003 was built by FIC - and this was good to me especially since I was familiar with the brand and its components. Just 2 years prior to that E machines built disposable PC's with bad power supplies and the return rates were very high. Somewhere along the chain of command things were restructured in the Asian company and finally the E-Machines brand started building computers with standard cases including replaceable PSU's and more mainstream motherboards. It was time to look at the E-Machines computer again. From 2003 on I have owned nothing but E-Machines, my last/latest being ET1331-G 07, a Wal-Mart buy(December 2009...really..their last great model -fully customizable with power and a 750GB 32mb cache WD Caviar HDD standard) before obviously their climb became too high and then.. the Acer company saw this vantage point as a way to bring their broken name back into the foray as a main player in the game again. Just a few years ago Acer had lost it way somewhat like Gateway with bad decisions and poor products with poor support. Their must be a lot of corporate cleansing in Asia where the brands are switched from brand to brand, obviously between families of rich owners/ investors/traders that acquire these names and rebrand to save face. They always seem to work it out.
E-Machines has been reduced to small form factor basic model computers with little to no guts and not much room for upgrade. Why bother? Go buy that new Acer Computer that has everything you need to stay current with its new line of great PC's. Any way you cut it all three brands come from the same house; Acer, E-Machines, Gateway, and if you dig a little deeper into the Asian pyramid I bet a Lenovo could be found laying in the stack somewhere.
Big Daddy Jo has it all worked out for us Kids. He going to to take real good care. Not to worry. Buy Now.
Posted by maxti6 (1 comment )
Reply Link Flag
 

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