March 8, 2002 12:45 PM PST

Gateway throws a Profile punch at iMac

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Apple Computer has whipped up a frenzy with its new flat-panel iMac, and Gateway is getting in on the action.

Gateway, which is trying to regain a stable footing in the marketplace, plans to release its fourth-generation Profile PC this summer, said sources familiar with the product. The all-in-one computer built around an LCD (liquid crystal display) monitor would compete against Apple's popular, new iMac.

The Poway, Calif.-based PC maker got into the all-in-one business with its original Profile computer in June 1999 on the coattails of the first iMac. Gateway, however, did beat Apple to the punch with the first all-in-one computer to feature a flat panel. While Gateway says its current flat panel, Profile 3, is profitable, the Profile line for the most part has experienced only limited success.

The new iMac, which Apple announced in early January, suspends a 15-inch flat-panel monitor from a pivoting arm attached to a half-dome base. IBM also competes in this market with the NetVista, but Big Blue's focus is business. Apple and Gateway both court consumers.

Profile 4 will be a significant upgrade to Profile 3, sources said. The new model will finally bring Pentium 4 processors to Profile and add some features not found on iMac or NetVista. All three companies currently offer computers built around a 15-inch flat-panel display, but Gateway plans to add a second model using a 17-inch monitor, sources said.

Profile 4 also will have USB (universal serial bus) 2.0--the successor to USB 1.1--capitalizing on Gateway's early advantage of offering high-speed connectivity, according to sources. Gateway was the first major PC maker to offer USB 2.0, which ratchets up throughput to 480mbps from 12mbps. But other manufacturers are expected to add the connectivity standard when Intel makes supporting chipsets available later this year.

Gateway also plans to streamline the design, making the Profile 4 look more like a stand-alone flat-panel monitor than the current model does. Gateway's older design places the processor, CD-RW (CD-rewritable) drive and other components directly behind the monitor, giving the Profile 3 a bulky profile when viewed sideways. NetVista takes a similar approach, while the iMac's computer-in-the-half-dome approach separates the computer's guts from the display, which appears to be suspended in the air when supported by the swing arm.

The Profile 4 will take a more compact approach, with the main computer components jutting out slightly from the display, greatly reducing Profile's profile.

Tough times, LCD shortage
Gateway has been struggling since around August 2001. In January, the company announced that it would be cutting more than 15 percent of its remaining work force and closing 19 under-performing stores. It also confirmed a drop in fourth-quarter sales and said price cuts were on the way. This followed a restructuring at the company and earlier price cuts made in an effort to improve market share.

The company will be launching the new model just as PC makers reel from the effects of an LCD panel shortage. Delivery lead times on Profile 3 are currently four weeks. Apple has been hit even harder, with distributor Ingram Micro sitting on about 10 weeks of outstanding dealer orders.

Gateway spokesman Brad Williams declined to comment on any possible successor to the Profile 3, but gladly discussed recent sales increases.

"Profile 3 sales are up nearly twofold since Jan. 7, when the iMac was introduced, and that was helped along by the role that the Profile 3 played at the Olympics," he said. "Those were retrofitted with touch screens for the Olympics. Certainly, we got some boost from the Olympics, but the iMac we think has really created additional demand for us."

Gateway provided 5,700 PCs to the recent Winter Olympic Games in Salt Lake City, with Profile 3 making a strong showing. The Profile PC also is making other high-profile appearances. One model is used in the courtroom where the Microsoft trial goes on its next phase of testimony on March 18.

Apple iMac The competitive fray
Certainly iMac has shined anew the spotlight on PCs incorporating flat-panel monitors into the design, said ARS analyst Toni Duboise. "The more attention that's brought to that kind of system, the better off everybody is." Her reasoning: After years of failures, such as the demise of Dell Computer's WebPC or Compaq Computer's Presario 3500, stylish, more full-featured PCs are beginning to draw in more consumers.

"That higher-end system comes at a premium, and that's going to help Gateway's bottom line," Duboise said. But the ARS analyst questioned whether iMac really had helped Profile sales all that much.

"I'm surprised they said their sales have gone up twofold since the new iMac's release," she said. "I honestly don't know what that means. What I've seen on this end is that their Profile lineup has actually thinned, and by some appearances it hasn't done all that well. In fact, I would say that up until now the Profile hasn't won much acceptance at all."

Technology Business Research analyst Tim Deal doesn't doubt Profile sales are up, but he agrees with Duboise that iMac isn't likely the reason. "I believe any increases in Profile sales would be due to declining prices," he said. "Profile prices have pushed lower and lower and are getting to a more mainstream level."

The Profile 3 was originally priced at $1,999; the Profile 3CX is now listed at $1,699 on Gateway's Web site.

Deal believes that if Gateway can build on its experience with the first three generations of Profile and turn out a compelling design, the all-in-one PC might gain some traction against the iMac. Still, he doesn't see Profile as ever being a big seller for Gateway.

"The Profile is a niche market for Gateway, and it is a profitable one," he said. "Other vendors don't appear to be supporting their all-in-one sales, and some gave up altogether and exited the market. Gateway has supported the Profile through and through and seems content with the fact it's a niche-market opportunity. The company's strategy is to use the Profile as a showpiece and hopefully when executives and front desks use it, other Gateway PCs can be incorporated into the infrastructure."

Duboise said Profile's success, particularly when pitted against the iMac, will depend much on design, and there Gateway faces a tough challenge taking on Apple's computer.

"With this kind of machine, design is key," she said. "People that are looking for an all-in-one machine are usually expecting to pay a premium. If you put an iMac against a Profile, Gateway is going to have to step up to the design. To penetrate this market at all, they're going to have to wow their customers with a new design."

Still, Gateway plans to offer a 17-inch model, which could be a big customer draw, despite iMac's innovative design.

"Large-screen, flat-panel is a big feature market driver," Duboise said. "I think that would be an advantage in Gateway's favor--if they have a 17-inch model that's comparably priced against a 15-inch iMac. That might weigh the scale a little bit in their favor against iMac's design."

 

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