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Technology Stocks : Gateway (GTW) -- Ignore unavailable to you. Want to Upgrade?

To: Souze who wrote (7344)	9/17/1999 4:52:00 PM
From: D. Plen	Respond to of 8002

BIG volume on GTW today. Twice average daily volume! Looks good for breaking through $50. D. Plen

To: Souze who wrote (7344)	9/21/1999 11:03:00 AM
From: D. Swiss	Read Replies (1) \| Respond to of 8002

Here is the detail of the PW upgrade: Sent: Friday, September 17, 1999 6:15 AM Subject: GTW: Here Comes i-Gateway - Upgrading to Buy Gateway's Internet strategy is about to undergo a major expansion centered around a "mega-portal" concept leveraging GTW's direct/mass customization capabilities. If management can execute on this strategy, we believe GTW's multiple could see significant expansion. Current business fundamentals are robust, highlighted by GTW's return to aggressive pricing. With a plan to stop collecting sales taxes and to get the expense ratio down to 12%, we think GTW can defend and grow its Direct channel share again. We also met with Apple CFO Fred Anderson. Business conditions are robust for Apple, and the company is embarking on several fronts, including lower price points and an internet push of its own. Apple is also planning to stop collecting sales tax, just part of the company's effort to ramp the direct business up to 45% of sales. Please see the attached .pdf files with notes on both Gateway and Apple. Call me at 203-978-9100 if you have any questions. Don GTW KEY POINTS · We believe Gateway's new Internet initiative has the potential for rapid expansion and to drive a change in investor psychology and valuation of Gateway. Within two years, we estimate Gateway's Internet service, built around a new mega-portal, could be valued between $22-$44/share - nearly as much as the total current valuation. · Meanwhile, Gateway's core PC hardware business is performing strongly. Market conditions for the consumer are robust while Gateway has a very strong product push coming that will launch PC products with unique form factors but at mainstream price points. We believe both an all-in-one design and a lower cost Profile (small footprint LCD based desktop currently priced at $2200 likely to drop to sub $1600 price points) will be big sellers. · Management is also focusing on streamlining and simplifying the business. Reducing product complexity and reduced expense structure (targeting 12% versus 15% today) will increase Gateway's efficiency and competitiveness. We believe Gateway is again ready to defend or gain share in its traditional direct channels. · Gateway's newly adopted lower pricing strategy is beginning to drive better unit growth. Gateway is also in the midst of reviewing its sales tax policy which has the potential to eliminate a major competitive disadvantage - since GTW's phone sales are one of the few that collects sales taxes in most states. · We also believe over one hundred incremental Country Stores will continue to power rapid expansion in the retail channel with Gateway likely to be the number one retail brand shortly. · We remain concerned about the potential for secular decline in PC hardware profitability (although this is not likely to be the case in the near term for Gateway). But we find Gateway's "Beyond-the Box" position to be one of the strongest and likely to enable superior financial returns for Gateway even as PC hardware profitability erodes in the long term. · While we rarely like to upgrade a stock again after it has just made a major move - we find the I-Gateway opportunity for valuation expansion to be impressive and we believe there is upside to the near term EPS outlook. Accordingly, we are raising our Attractive rating to a Buy, designating GTW our new Analyst Best Call in PC Hardware, and strongly recommending the shares. We remain a big believer in the Gateway Country Store strategy and we believe Gateway has become a re-invigorated competitor in the traditional direct channels. And just as management changed the rules of the game with Gateway Country - we believe i-Gateway is as big an opportunity. We are maintaining our $60 price target (26X 2000 EPS) for now - but we see the 12 month potential for a doubling in valuation if the i-Gateway strategy and execution succeeds. :o) Drew