November 1, 2002 8:51 AM PST

Gateway plasma TV to undercut prices

Gateway will come out with its first television in years on Monday, and the real eye-catching feature is the price.

As reported earlier, Gateway will begin to sell a branded 42-inch screen plasma TV for just under $3,000, according to sources close to the company. That's hundreds of dollars below the price of competing models. In September, the average selling price of plasma TVs in the United States was $6,328, according to Tom Edwards, senior analyst at research firm NPD Intelect.

"$3,000 seems a little aggressive," he said.

Sticker shock, though, is the point. The Poway, Calif.-based PC maker has revamped itself over the past two years--exiting international markets, installing an entirely new management team and closing product divisions--after a disastrous slide in profits. Now the company says it's on the comeback trail and wants to advertise the fact.

"You're going to see us get into a lot of digital media products," said Brad Williams, a Gateway spokesman. "We're taking market share and gaining revenue sequentially...Our PC line is as strong as it has been in our history."

Still, it won't be easy. Pricing pressure remains high in PCs and consumer electronics, and Gateway is trying to undercut competitors in both markets. The next-cheapest 42-inch plasma screen sells for $3,596, Edwards said, and it's a closeout model. The next-cheapest after that sells for $4,614. Volumes are also light compared with the PC market.

Williams would not confirm the $3,000 price, but reiterated that the television will go on sale Monday.

Gateway continues to lose money. The company lost $50 million, or 15 cents a share, for the quarter ending in September and trimmed its financial outlook for the year. Still, losses are decreasing, and the company says it will return to profitability next year.

Some analysts speculated that Gateway is getting a special deal on the plasma screens, which come from LG Philips. Edwards disputed that, noting that LG Philips sells plasma TVs for more. Margins on these televisions are high, hovering around 30 percent, according to some estimates, so Gateway may just be lowering margins.

In some ways, this is a back-to-the-future strategy. In November 2000, Gateway announced it was going to begin to make a variety of branded consumer-electronics products that would include phones, speakers, video gateways and Web tablets. The company planned to team with America Online and Broadcom to introduce these products.

Three months later, then-CEO Jeff Weitzen was asked to leave, founder Ted Waitt took over the job, and the company went through the painful restructuring grind. Gateway also sold a PC-TV in the mid-90s that led a short life.

The company's retreat from consumer electronics in 2001 came from a need to retrench, Williams said. It wasn't a rejection of the concept.

Among other products, Gateway will likely come out with new flat-panel monitors, MP3 players and other devices, Williams said. The stores will also feature product demonstrations to differentiate them from the electronic superstores where consumers get "150,000 square feet of confusion," he added.

The stores will carry both Gateway-branded products and products from third parties, he said.

 

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