Can you say CONSOLIDATION? Good for CPQ!!
Gateway May Leave Foreign Markets, Cut Manufacturing (Update1)
By Peter J. Brennan
San Diego, Aug. 8 (Bloomberg) -- Gateway Inc. is considering pulling out of European and Asian markets, reducing its in-house manufacturing and eliminating custom personal-computer options for consumers in a restructuring aimed at returning to profitability.
Exiting those markets, which generated $1.36 billion in sales last year, could result in the firing of the second-biggest direct PC seller's 2,500 overseas workers, said founder, Chairman and Chief Executive Ted Waitt in an interview in his San Diego office.
``We will have less people six months from today,'' Waitt said. ``We're doing a fundamental strategic restructuring of the business based on who we want to be and who we want to go after.''
Scaling back overseas business and limiting direct-sales options would advance Waitt's efforts to resuscitate Gateway, which has reported three straight quarterly losses as it has weathered slumping PC demand and fierce price-cutting by rivals such as Dell Computer Corp. The 38-year-old returned as CEO in January after a year's absence. He fired his hand-picked successor, Jeff Weitzen, and six other top executives after sales and profit began to slide.
Last month, the company said it would focus more on services and would soon unveil a new strategy. Waitt said the final decisions may be made by the end of September. Gateway already fired 3,000 workers this year.
The shares rose 22 cents to $11.42 in early afternoon trading. They have dropped 37 percent this year.
International Markets
The biggest move would be departing foreign markets, where Gateway employs 13 percent of its 20,000 workers and gets 14 percent of sales. The decision may mean the closure of plants in Dublin and Malacca, Malaysia, and its 50 overseas retail stores, mostly in Ireland, the U.K. and Japan. The company also is studying whether to remain in smaller markets such as Latin America and Africa.
Gateway has had management turnover overseas, Waitt said, and the company would have been profitable in the second quarter excluding foreign business.
``In international markets, we just don't have the brand presence, the brand awareness or the distribution capability that we have with our stores,'' said Waitt.
Gateway employs about 900 people in its sales and manufacturing headquarters in Dublin, said Davy Stockbrokers technology analyst Barry Dixon.
Buyers' Options
Gateway, which sells by phone, over the Internet and at about 300 Gateway Country stores in the U.S., will focus on selling PCs and related services and products in the consumer, government, education and small to medium business markets. The company won't battle for large corporate clients because it doesn't have the necessary capital, Waitt said.
The company, whose hallmark cow-spotted PC boxes hark to its 1985 founding in an Iowa farmhouse, may scrap home buyers' options for configuring their computers exactly the way they want, one of the main attractions of the direct-sales model innovated by Gateway and Dell. Gateway already has shrunk the number of possible configurations from more than a million to hundreds. The company said it might offer only a couple dozen different configurations for consumers. Businesses still could customize their machines.
``It used to be a huge advantage to us to say, `Do you want a 20 (megabyte) hard drive or 40 meg hard drive?' '' he said. ``Now, you've got 60 (gigabyte) and 80 gig (hard drives). These things are huge.''
Gateway will hire other companies to do more of its manufacturing, Waitt said. The company currently outsources some products, such as laptops built by Quanta Computer Inc. of Taiwan. Gateway has U.S. plants in Hampton, Virginia; North Sioux City, South Dakota; and Salt Lake City.
``We don't view ourselves as PC manufacturers. We never have,'' he said. ``We happened to make PCs because we could do it better than anyone out there and no one could do custom manufacturing. It was a huge competitive advantage over the entrenched players and it's what got us here. What's going to get us to the next level? We're working through it.''
A Rough Year
Gateway first stumbled last November, when sales over the Thanksgiving weekend declined 30 percent from the same period the previous year. At the time, the company slashed earnings forecasts for 2001, and has reduced them further this year. The shares have plunged 61 percent since as the PC market worsened.
Gateway last month reduced its profit estimate for the second half to break-even, compared with a February forecast that it would return to profitability. The shares fell 25 percent the following day. Analysts polled by Thomson Financial/First Call on average now expect a loss of 1 cent a share this quarter and profit of 3 cents in the fourth quarter.
The company will concentrate on improving profit more than revenue, Waitt said, pointing to a chart showing the company's $9.6 billion in sales for 2000.
``We won't see that number for quite some time,'' he said. ``Sometimes people have a hard time (believing) a company is intentionally trying to make itself smaller.''
Waitt said he's confident Gateway will recover.
``We've got a billion dollars in cash and we're not going away,'' he said. ``We're going to be here whether our competition likes it or not.'' |
