Irvine’s Gateway Inc. got some coal in its stocking over the holidays.
Late last year, Goldman Sachs Group Inc. analyst David Bailey downgraded the computer maker’s stock from “in-line” to “underweight.”
The downgrade pushed an already struggling stock down a few cents further to $2.59. Shares haven’t moved much since.
The decline is a sharp reversal from the beginning of last year, when the computer maker’s shares were trading near $6. There have been some stock rallies following Gateway’s improving quarterly earnings reports, but the trend has been negative for most of the year.
The computer maker counted a market value of about $990 million at recent check.
Goldman Sachs’ Bailey said in his research note that Gateway is “facing increasing fundamental hurdles relative to our other names” in the computer sector.
“The company does not have a meaningful product cycle to differentiate it from its main competitors nor do we expect any meaningful expansion in its retail presence,” Bailey said.
Gateway’s biggest problems are coming from Asia with the rise of Taiwanese computer maker Acer Inc., he said.
Acer already holds the No. 1 spot for laptop computer sales in Europe and has seen its worldwide share increase by 3.5 percentage points in the past five quarters. The company is expected to make another large push into the U.S. market early next year and expand its business by 60% to 70%, albeit off of a relatively low base.
Acer is going after the same customers Gateway targets.
“Acer’s renewed push into the U.S. retail and (small business) segment poses the most significant threat to Gateway,” Bailey said.
Acer is expected to expand its shelf space in the U.S. Bailey expects Acer to sell its products in the stores of Circuit City Stores Inc. and CompUSA Inc. by the middle of this year.
That push likely would come with attractive pricing for computer buyers.
In the technology rumor mill, Acer has been fingered as a potential buyer of Gateway to help extend its reach into the U.S. But if Acer can bulk up in the U.S. without Gateway’s connections, that rumor should die.
Gateway is led by Wayne Inouye, former chief executive of low-cost computer seller eMachines Inc. 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. Gateway is expected to post its first profit in years for 2005.
No One Is Buying
It wasn’t a pretty sight for Buy.com Inc. and the underwriters charged with leading the online retailer’s initial public offering late last year.
The Aliso Viejo-based company postponed its stock sale after failing to attract enough investors,even after reducing the initial sale price for its shares.
The price cut followed a handful of delays for the offering that Buy.com first filed for in early 2005.
After hearing nothing about the offering until the end of summer, Buy.com started a flurry of regulatory filings that eventually led to a Dec. 15 offering date. The company had hoped to raise more than $50 million with shares priced at $11 to $13 apiece.
The problems started early for the offering.
On the day before the planned stock sale, I called lead underwriter Thomas Wiesel Partners Group LLC in San Francisco to check on the pricing. After talking to a few people in media relations, I was sent to the trading desk where the offering was to be priced.
I called between 1:30 p.m. and 2 p.m. and was told to call back later for a price. I did so,two more times,and was told it wasn’t ready. The last time I called I was sent back to media relations with little explanation.
I asked what the price was going to be, but was told there was no comment,a line that subsequently was repeated several times.
There was no offering the following day. Despite reports of the stock sale being pushed back just one day, it didn’t happen on Dec. 16 either. Then word came that Buy.com cut the expected price for its shares to $8,a sign that investor interest was tepid at best.
At that price, the company would have raised about $33 million. The company planned to sell nearly 4.2 million shares.
The offering then was expected the following week.
The company would have had a market value of about $150 million. The shares were set to trade on Nasdaq under the “BUYY” symbol.
The offering never happened. The company said market conditions weren’t right.
Buy.com’s financials aren’t overly impressive. The company posted a net loss of $10 million and sales of $332 million for the nine months ended Sept. 30.
Remember: This would have been Buy.com’s second experience with the public markets. Buy.com went public in a big offering in 2000, but after a big stock dive, it was taken private by founder Scott Blum a year later.
Who knows? Maybe this company just needs some more time to simmer before it gets more investor interest.
Help Still Wanted
Tech companies will have to work a little harder to find help.
A Senate-passed measure to add more visas for foreign workers in technology and specialty fields was dropped from a budget bill in December, according to wire reports.
That’s a disappointment to tech companies struggling to find enough workers in the U.S.
The Senate plan would have allowed 30,000 more H1-B visas each year, with higher fees for the visas helping to trim the deficit. H1-B visas are used by workers from India, Pakistan and other countries to legally get jobs in the U.S.
Congress limited the six-year H-1B visas at 65,000 per year in 2004. The cap already has been reached for the 2006 year that began Oct. 1.
