57.5 F
Laguna Hills
Monday, Mar 18, 2024
-Advertisement-

Gateway Plows on as Takeover Talk Heats Up,Again

Irvine-based Gateway Inc. has been ripe for a takeover for years.

No one has bit, but speculation has heated up once again, spurred in part by the growth plans of Asian computer makers.

The lure: a falling price tag as Gateway shares slump amid a tough PC market. At the same time, Gateway has posted im-proved financial results under Chief Executive Wayne Inouye.

Asian-based computer makers looking to boost their U.S. presence might be casting an eye at Gateway.

However, no one is saying a deal is imminent,and Gateway remains independent after many rounds of speculation in the past.

Gateway declined to comment on takeover speculation.

Computer industry consolidation has played out during the past few years.

China’s Lenovo Group Ltd. closed its buy of IBM Corp.’s computer business earlier this year. Gateway itself bought Irvine’s eMachines last year. Hewlett-Packard Co. acquired Compaq Computer Corp. three years ago.

A list of possible Gateway suitors include Acer Inc. of Taiwan, Lenovo Group, smaller Asian PC makers and even HP.

Acer could be the mostly likely buyer.

Acer, the No. 4 computer maker in the world, said last week that it’s aiming to be the world’s third-largest computer maker within three years. Dell Inc. is the world’s biggest computer maker and HP is No. 2.

Acer projected sales growth of 40% to 50% a year, Chairman J.T. Wang recently told reporters.

The computer maker wants to duplicate the growth it’s seen around the world in the U.S., which accounts for about 8% of its total sales.

“(Buying Gateway) would almost immediately give them a solid U.S. presence,” said Rob Enderle, principal analyst at Enderle Group in San Jose.

Acer’s sales are expected to be about $9 billion this year, with Gateway looking for about $4 billion in revenue, up from $3.6 billion last year.

Despite the sales gains, Gateway’s market value has fallen below $1 billion, with its shares down more than 50% this year.

Enderle said Acer is on an aggressive growth path. The company increased its global market share by 68% in the past year, according to the second-quarter report by Stamford, Conn.-based researcher Gartner Inc. That was faster growth than the top five computer makers.

“In Europe and Asia they’re doing well,” Enderle said. “I think the top-tier vendors are looking at Acer pretty heavily as the guy coming up.”

Acer is an “indirect” seller of PCs, meaning it only uses retailers or other vendors to sell its gear. That’s different from the approach of Dell, the leader of “direct” sales via the Web and phone. Gateway and HP use blends of direct and indirect sales.

“It appears that the focus on one channel method is better than working with a blend,” Enderle said.

Acer could benefit from Gateway’s shelf space at retail chains such as Best Buy, CompUSA and Staples, said Stephen Baker, director of industry analysis for the NPD Group Inc. in Port Washington, N.Y.

Gateway is led by Inouye, former chief executive of low-cost computer seller eMachines. He took over at Gateway after its acquisition of eMachines. Inouye has brought on many top executives from eMachines, which he turned around before selling to Gateway.

“You get a management team that, at least at this point, seems to know how to manage in a low-margin business,” Baker said.

Rival Lenovo might want Gateway, too.

Lenovo’s buy of IBM’s PC business made the Chinese computer maker the No. 3 seller in the world.

It acquired a top name in IBM, with businesses accounting for most of Big Blue’s customers. Lenovo could covet Gateway’s consumer focus.

“That might be a way for them to get into the market,” Baker said.

Other Chinese PC brands could move in as well, though none have Lenovo’s size or experience.

A longer shot among Asian computer makers is South Korea’s Samsung Corp., a company named in speculative talks in the past.

Although it has a strong presence in the semiconductor, hard drive and cell phone markets, Samsung could use Gateway’s name to expand into the U.S. PC market. It sells computers in Asia and Europe.

But Baker said Samsung hasn’t shown much interest in the U.S. computer market.

An acquisition wouldn’t be Samsung’s first buy of a computer company in OC. In 1997, Samsung bought one-time computer maker AST Research Inc. in Irvine, but later dissolved the company after it floundered.

What about Gateway’s two bigger U.S. competitors: HP and Dell?

Don’t count on Dell. It’s not in the habit of buying companies to boost market share. Dell’s focus solely on direct sales wouldn’t mesh with Gateway’s model.

HP is a different matter, even if it hasn’t shown much interest in Gateway in the past.

Earlier this year, Bear Stearns analyst Andrew Neff said HP could be a buyer of Gateway, but only if two things happened: if chief executive Carly Fiorina left and, secondly, if HP spun off its computer business. Buying Gateway, under those conditions, would give HP more heft to battle Dell.

Fiorina, who showed little interest in splitting off HP’s PC unit, left the company earlier this year.

But HP since hasn’t shown an interest in shedding its less profitable computer business from its higher-margin printer and imaging products.

Gateway on its own may not have enough size to compete in an industry that yields razor thin margins on each computer sale.

“As the PC market gets to be more about scale,and not just about scale on a regional basis but really a worldwide kind of scale,the question is do they have enough scale, enough share to be a meaningful (player)?” NPD’s Baker said.

Piper Jaffray Cos. analyst Les Santiago recently downgraded his rating on Gateway to “underperform” from “market perform.”

“A worsening PC pricing and competitive environment compounded by increasing component costs does not bode well for Gateway, which is in the midst of a gut-wrenching turnaround,” Santiago said in a report.

Still, Santiago,like many analysts,has given Gateway kudos for its turnaround under Inouye.

According to Gartner, Gateway saw its U.S. market share grow to 5.7% in the second quarter, up from 5% in the year-ago period.

“I think they’ve done a lot of good work in turning the company around and getting it headed in the right direction,” Baker said.

The downside: In August, the company warned that its sales and profit for 2005 would fall short of Wall Street expectations amid tough competition and price cuts. The upside: Any profit would reverse years of losses for Gateway.

Want more from the best local business newspaper in the country?

Sign-up for our FREE Daily eNews update to get the latest Orange County news delivered right to your inbox!

-Advertisement-

Featured Articles

-Advertisement-
-Advertisement-
-Advertisement-
-Advertisement-

Related Articles

-Advertisement-
-Advertisement-