Gateway Inc is considering pulling out of European and Asian markets, reducing in-house manufacturing and ending build-to-order PC options for consumers, steps aimed at returning to profitability.
Exiting those markets, which generated US$1.36 billion in sales last year, could result in the firing of the second-biggest direct PC seller's 2,500 overseas workers, founder, Chairman and Chief Executive Ted Waitt said 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 business outside the US and limiting direct-sales options would advance Waitt's efforts to resuscitate Gateway, which has reported three straight quarterly losses as it weathered slumping PC demand and 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 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.
Gateway employs 13 percent of its 20,000 workers, and gets 14 percent of sales, outside the US. The company may close plants in Dublin and Malacca, Malaysia, and 50 retail stores, mostly in Ireland, the UK and Japan. The company is studying whether to remain in smaller markets such as Latin America and Africa.
Gateway has had management turnover overseas, Waitt said. The company would have been profitable in the second quarter excluding business outside the US, he said.
"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, which sells by phone, over the Internet and at about 300 Gateway Country stores in the US, 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 larger corporate clients because it doesn't have the necessary capital, Waitt said.
In Japan, Gateway has already closed a quarter of its retail stores this year, spokeswoman Tomoko Kanai said. Gateway's Japan unit, Gateway Japan Inc, has shut five Gateway Country shops out of its 20 stores. The company takes orders for customized Gateway PCs at the shops.
Gateway Japan's retail outlets also market standardized PCs, peripheral products and Gateway goods such as bags, cups and T-shirts. The company also offers support services for customers who buy and own Gateway PCs in Japan.
Gateway Japan began closing its five retail shops earlier this year, Kanai said. The stores were located in Chiba, Shizuoka, Niigata, and Fukuoka prefectures. Of the 15 stores now in operations, five are in Tokyo.
Kanai declined to comment on whether the Japan unit has any immediate plans to close its remaining outlets. Customer visits to the company's store in Tokyo's Akihabara electronics shopping district have dropped by more than half compared with last year, a sales manager at the store said.
The company, whose hallmark cow-spotted PC boxes hark to its 1985 founding in an Iowa farmhouse, may scrap homebuyers' options for configuring computers exactly the way they want. It already reduced the number of configurations from more than 1 million to hundreds. The company said it might offer only dozens of configurations to consumers. Businesses still could customize.
"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 US 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."
Gateway is doing the right thing by considering the moves because these areas have been a drain on the company's profits, some analysts said.
"Gateway does not have low-cost production efficiencies in many ways," said James Waggoner, director of research for Sands Brothers & Co. "It's a sign of the pressure that Dell and other manufacturers have put on Gateway."
The company will concentrate on improving profit more than revenue, Waitt said, pointing to a chart showing the company's US$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."
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