Gateway Inc said Friday that it would buy privately held eMachines Inc, for US$30 million in cash and US$50 million in Gateway stock, in a deal currently valued at US$266 million.
The deal, which comes one day after Gateway posted its 12th loss in 13 quarters, is the latest effort by the beleaguered company to stanch its losses and capture a bigger share of the market for low-end personal computers, which eMachines has shown rapid and consistent growth.
Word of the merger was well received on Wall Street, where Gateway stock rose US$0.63, or 15 percent, to US$4.72. Technology analysts viewed the merger as a positive move for both companies, but particularly for Gateway, which on Thursday posted a fourth-quarter loss of US$114 million, or US$0.35 a share, compared with a US$72 million loss, or US$0.22 a share, for the same period in 2002. Sales last year were US$3.4 billion, a 19 percent drop from sales of US$4.2 billion in 2002.
When the deal closes in the coming weeks, the combined company will become the third largest PC maker in the US market, behind Dell and Hewlett-Packard.
Wayne Inouye, the chief executive of eMachines, will become chief executive of Gateway and Ted Waitt, the founder and chief executive of Gateway, will remain the company chairman.
Industry analysts said the deal makes sense because it gives eMachines, based in Irvine, California, needed capital and access to a larger product line and gives Gateway, based in Poway, California, needed access to the low-price PC market and chain stores where eMachines has established relationships. This is important to Gateway because its own retail stores have done poorly.
"This gives Gateway flexibility in dealing with its stores and a new distribution channel," said Roger Kay, an analyst with IDC, a market research firm. "The stores have been a potential albatross. They won't abandon the stores immediately but now they have an exit strategy."
He said the deal would give eMachines access to Gateway's US$1.1 billion in cash. EMachines has been one of the fastest-growing personal computer makers in the US market, with US$1.1 billion in revenue last year and profitability for nine consecutive quarters.
Gateway, however, has continued to struggle despite several restructurings and after its renovation of its retail stores last year to compete with Best Buy, Sam's and other discount outlets.
The company's move into consumer electronics, like its new line of plasma televisions and digital cameras, has gone well but its PC sales have continued to decline, prompting some to predict that Gateway would have to leave the PC business eventually.
A Gateway spokesman, Brad Shaw, said the company would continue to sell its products through its stores and eMachines, which would remain a separate brand, would continue to be sold at big box retail outlets.
"We're still firmly committed to the PC business," Shaw said. "We've never said we would turn away from the PC and, if anything, creating this new relationship should validate that."
Shaw added that the eMachine deal would help shrink operating losses as Gateway moves through last year's restructuring effort. He declined to say whether layoffs or store closings would be necessary.
"Clearly, a big part of the strategy for creating a merger is to drive cost reductions," he said. "It's too early to speculate but the stores are something we continue to look at and evaluate on an individual and a channel basis."
Kay said Gateway should benefit from eMachines' successful business model and its management strategies while creating a company of a size sufficient to compete with the PC giants. The merger, he said, was representative of overall changes in the PC market.
"We're in the early-middle age of maturity of the PC market," he said. "At this point, it's going to be a matter of who is the last man standing -- so bulk counts."
DECOUPLING? In a sign of deeper US-China technology decoupling, Apple has held initial talks about using Baidu’s generative AI technology in its iPhones, the Wall Street Journal said China has introduced guidelines to phase out US microprocessors from Intel Corp and Advanced Micro Devices Inc (AMD) from government PCs and servers, the Financial Times reported yesterday. The procurement guidance also seeks to sideline Microsoft Corp’s Windows operating system and foreign-made database software in favor of domestic options, the report said. Chinese officials have begun following the guidelines, which were unveiled in December last year, the report said. They order government agencies above the township level to include criteria requiring “safe and reliable” processors and operating systems when making purchases, the newspaper said. The US has been aiming to boost domestic semiconductor
Nvidia Corp earned its US$2.2 trillion market cap by producing artificial intelligence (AI) chips that have become the lifeblood powering the new era of generative AI developers from start-ups to Microsoft Corp, OpenAI and Google parent Alphabet Inc. Almost as important to its hardware is the company’s nearly 20 years’ worth of computer code, which helps make competition with the company nearly impossible. More than 4 million global developers rely on Nvidia’s CUDA software platform to build AI and other apps. Now a coalition of tech companies that includes Qualcomm Inc, Google and Intel Corp plans to loosen Nvidia’s chokehold by going
ENERGY IMPACT: The electricity rate hike is expected to add about NT$4 billion to TSMC’s electricity bill a year and cut its annual earnings per share by about NT$0.154 Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has left its long-term gross margin target unchanged despite the government deciding on Friday to raise electricity rates. One of the heaviest power consuming manufacturers in Taiwan, TSMC said it always respects the government’s energy policy and would continue to operate its fabs by making efforts in energy conservation. The chipmaker said it has left a long-term goal of more than 53 percent in gross margin unchanged. The Ministry of Economic Affairs concluded a power rate evaluation meeting on Friday, announcing electricity tariffs would go up by 11 percent on average to about NT$3.4518 per kilowatt-hour (kWh)
OPENING ADDRESS: The CEO is to give a speech on the future of high-performance computing and artificial intelligence at the trade show’s opening on June 3, TAITRA said Advanced Micro Devices Inc (AMD) chairperson and chief executive officer Lisa Su (蘇姿丰) is to deliver the opening keynote speech at Computex Taipei this year, the event’s organizer said in a statement yesterday. Su is to give a speech on the future of high-performance computing (HPC) in the artificial intelligence (AI) era to open Computex, one of the world’s largest computer and technology trade events, at 9:30am on June 3, the Taiwan External Trade Development Council (TAITRA) said. Su is to explore how AMD and the company’s strategic technology partners are pushing the limits of AI and HPC, from data centers to