why not dell continued...hey all, check out this article, what do you all think?
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Source: Aug.10th issue of Forbes.
For whom the Dell tolls
By Michelle Conlin
WHEN THE HISTORY OF THE PC is written, the name Theodore Waitt will have an
honored place-but that's not what's concerning the brilliant 35-year-old founder of
Gateway these days. In a business where you grow or die, Gateway's growth has clearly
slowed.
Suddenly the trends in the personal computer business are going against Waitt. Ever since
he dropped out of the University of Iowa and began cobbling PCs together on his dad's
farm 13 years ago, Waitt has marched to his own drummer, operating far from Silicon
Valley and selling souped-up boxes to wireheads and tech-savvy users for an average
cost of $2,253.
Two years ago high-end users were half the PCmarket. Now they only make up
25%, as more than half the market is now in machines that cost less than $1,500. In this
price-conscious market, Gateway has been under intense pressure. Its average selling
price for its units dropped 12%last year and 3% in the first quarter of this year.
Like Michael Dell, Ted Waitt pioneered direct selling of computers, but with this
difference: Whereas Dell concentrated on the corporate market, Gateway sold mostly to
individuals-a bad mistake. Five years ago Dell lost $36 million on sales of $2.9
billion, while Gateway earned $100 million on sales of $1.7 billion. Last year?
Dell's sales of $12.3 billion were double Gateway's. And Dell earned $944
million, almost nine times as much as its South Dakota competitor. Though
business customers make up 30% of Gateway's sales, they're mostly small and
midsize shops.
Moreover, Dell has a 10% market share in the high-margin business of servers,
those computing storage device units. Now that desktop and notebook prices are
tumbling, servers-with average prices of $7,500-are providing some price stability.
For every 33 desktops or notebooks Dell sells, it also sells a server. Gateway's ratio:
94-to-1.
"You are going to see a server marketing campaign geared toward small and midsize
businesses," Ted Waitt told FORBES. But for now the numbers tell the score: Dell
Computer's operating income margins rose, from 9.2% in 1996 to 10.7% last
year, while Gateway's sank, from 7% to 4.6%, in the same period.
To hold on to its consumer market base, Gateway is spending an average of $685,000 a
pop to open so-called Country Stores, retail showrooms that carry no inventory but let
potential customers try out Gateway machines and place orders. Gateway has already
opened 58 stores in 26 states, and plans to open 42 more by the end of this year.
In another bow to the consumer market, Gateway announced a new financing gimmick in
late May called Your Ware. Consumers pay, say, $50 a month for a $1,249 desktop that
comes with videogame software, Internet access and a promise from Gateway to buy the
unit back if you trade it in for a newer model. But after three years, for example, Gateway
would only pay you about five cents on the dollar, says Piper Jaffray's Ashok Kumar.
Gateway gets fees from the Internet service provider and the financing company, MBNA.
But consumers may not be enticed. The average interest rate is about 17%, which is
about 11/2percentage points above the average charge-card rate.
Not only has Dell blitzed the commercial market, it is also crowding Gateway in
the consumer market. In the first quarter of this year-versus the fourth quarter of
1997-Dell's consumer unit growth was up 6%; Gateway's slid 7%. Overseas, Dell's unit
sales increased 70% in the first quarter of 1998, nearly six times Gateway's unit growth.
In apparent recognition that he can no longer go his own highly individualistic way, Waitt is
moving Gateway's headquarters to San Diego-a growing high-tech center-from the cow
pastures of North Sioux City. Gateway is still healthily in the black-earning $110 million
last year-but it is clearly losing momentum. This is not a business where you want to lose
momentum.
forbes.com |
