Alexa

Gateway's trajectory from startup to PC giant to also-ran

Gateway's trajectory from startup to PC giant to also-ran

In the 1980s, the small South Dakota business selling computers through catalogs was called Gateway 2000. In 1998, the "2000" no longer sounded as futuristic and the now gigantic company was renamed Gateway Inc.
But keeping the year in the name would not have been inappropriate, considering Gateway's later fortunes. It is a company that can look to its past for greatness, not the future.
Gateway's acquisition by Taiwanese company Acer Inc. for $710 million (euro519.84 million), announced Monday, ends its history as an independent company, and to a long period of being the "sick man" of the U.S. personal computer industry.
Gateway started out much the same way as Dell Inc.: young man quits college in the '80s to get into the PC business, which was new at the time. In this case, the young man was 22-year old Ted Waitt, who teamed with his brother Norm and his friend Mike Hammond.
Starting in an Iowa farmhouse in 1985, they sold add-ons for Texas Instruments computers. The Gateway brand of PCs came a few years later, and from then on, growth was swift, fueled by Waitt's marketing savvy and ads that emphasized the company's Midwestern roots, often with images of cows.
In 1991, the company, then based in Sioux City, South Dakota, started shipping in containers with cow spots. These became iconic along with Waitt's ponytail.
The business model was similar to Dell's. The computers did not sit on Gateway's shelves, but were built when orders were placed _ a smart move in an industry where a component's value could drop almost by the week.
However, Gateway's customers were mainly consumers, as opposed to Dell, which went for the business market, a difference that has lasted to this day.
In 1993, Gateway went public. It had about 3,000 employees and was valued at $1 billion (euro730 million), making it South Dakota's only Fortune 500 company. It opened a factory in Ireland, and two years later, bought Australia's largest PC maker.
In 1997, Waitt turned down a $7 billion (euro5.13 billion) takeover bid from Compaq, now part of Hewlett-Packard Co.
In 1998, Gateway moved from Sioux City to suburban San Diego, one of many headquarters moves. Unfortunately, the company seemed to have as hard a time finding a winning strategy as it did in finding a permanent home base.
The PC business was quickly becoming a commoditized me-too business with numerous players and tiny margins.
Gateway's answer was to try to expand into consumer electronics, including plasma TVs. Moving away from the just-in-time manufacturing model, it opened retail stores.
Neither concept really worked. That problem was compounded, starting in 2001, with the dot-com bust and an attendant industrywide slowing of sales. Gateway went deep into the red, with a 2001 loss of more than $1 billion (euro730 million).
To keep costs in line, Gateway started closing stores, withdrew from overseas markets, and laid off workers.
In 2004, Gateway bought eMachines, a relative newcomer to the PC business. Emachines had just 138 employees, yet Gateway paid $290 million (euro212.33 million) in cash and stock for it, and more or less turned itself into a larger version of eMachines.
Wayne Inouye, the CEO of eMachines, became the new head of Gateway, replacing Waitt, and Gateway adopted eMachines' strategy of selling through big-name retailers such as Best Buy Inc., Circuit City Stores Inc. and Wal-Mart Stores Inc.
Gateway closed its own stores and laid off most of its workers. From 24,600 employees in 2000, Gateway was down to 1,800.
As a leaner company, Gateway was able to stem its losses, but it never came close to regaining the size that would allow it to take on Dell and HP. Its stock price, already down to $5 from above $80 in 1999, started a slow slide toward $1.
In 2006, the founder of eMachines, Lap Shun Hui, came back with an unsolicited $450 million (euro329.48 million) to buy Gateway's retail business. Gateway rejected the offer as too low, but in view of Monday's announcement, it was not far off. The $710 million (euro519.84 million) Acer is paying is a tenth of the offer Compaq made in 1996, without adjusting for inflation.
___
On the Net:
http://www.gateway.com/about/news_info/company_background.php


Updated : 2021-01-25 13:52 GMT+08:00