Gateway Inc. Chief Executive Ed Coleman has laid out his vision to turn around the drifting computer maker: zero in on sales through big stores and away from direct pitches to businesses.
All the while, Coleman, on the job since September, wants to boost operations, build on Gateway’s brand and come up with sleek, memorable designs for notebook computers.
“We have a lot of things to work on,” Coleman said in a speech earlier this month before the local arm of the American Electronics Association in Newport Beach.
Analysts have their own ideas for Irvine-based Gateway, the No. 3 PC maker after Dell Inc. and Hewlett-Packard Co.
“For every one right thing they are doing, there is one wrong thing,” said Matthew Kather of WR Hambrecht & Co. in Stamford, Conn. “They need two to three quarters of consistent quality performance.”
Gateway is in a tough spot. It’s a distant third in PCs to bigwigs Dell and HP and faces a challenge on its flank from China’s Lenovo Group Ltd.
“They are in a real bind in terms of their competitive position in the industry,” said Rick Hanna, analyst at Morningstar Inc. in Chicago. “Time is ticking for the company.”
Wall Street has lost patience. Gateway’s shares are off by more than half in the past two years and down 30% since March. Its market value last week was about $640 million.
Among analysts’ biggest gripes:
– Gateway has too many lines of business, selling through stores, on its own to business and directly to consumers via the Web and phone lines.
“Gateway is just not big enough to be all things to all people,” Morningstar’s Hanna said. “They need to pick a spot.”
– Gateway’s costs are draining cash. The company doesn’t sell enough computers to get components at low prices. In the first quarter, Gateway’s cost of goods sold fell 4% to $959 million, or to 95% of the company’s $1 billion in revenue. But it still pales Dell’s 86% ratio.
Gateway shed 100 jobs last year and another 100 this year. But it’s not enough, according to analysts.
“Despite cost cutting, Gateway’s long-term survival as a stand-alone company is far from assured,” Hanna said.
– Higher-end, more profitable notebooks can’t be the only source of Gateway’s growth. In Coleman’s speech, he played up the idea of making notebooks that make a style statement by way of compelling design.
But Gateway “suffers from a lack for strategic focus and does not offer customers anything unique (as Apple Inc. does) or low cost (like Dell),” Hanna said.
Company watchers see a few bright spots.
One is its strong brand recognition.
Coleman said in his speech he’s counting on Gateway’s 96% brand awareness,sans the cute spotted cow,to pull the company through.
“It has this incredibly resilient brand,” he said.
The popular image of Gateway is “of a somewhat friendly, fun brand (that’s) a little whimsical at times, but with a real history of product innovation,” Coleman said.
The company gets brownie points for its relationship with electronics retailer Best Buy.
Sales at Best Buy are the result of former Gateway chief executive Wayne Inouye, a onetime Best Buy vice president of computer merchandising. Inouye steered Gateway toward more retail sales and brought the company back to profitability before being pushed out in early 2006.
Gateway’s renewed consumer and retail push is reminiscent of Inouye’s plan of a couple years ago.
The company’s best hope is to be bought, according to analysts.
Earlier this year, Gateway shot down rumors it could be bought by Taiwan’s Acer Inc., which stands to get a foothold in the U.S. market with a deal.
And the company rejected a buyout offer last year from Orange County businessman Lap Shun “John” Hui, founder of Irvine’s eMachines Inc., which Gateway bought in 2004.
Others call for pairing down the company to its essentials by focusing on retail.
“We wouldn’t be surprised to see an investment group or a competitor acquire Gateway to move the company in the (retail sales) direction,” Morningstar’s Hanna said.
