Forbes: A Way Out For Gateway

Gateway (nyse: GTW – news – people ) once again disappointed investors last night with a revenue and earnings warning for the fourth quarter, typically its strongest. If it wasn’t already, it’s now painfully obvious that Gateway is at a significant disadvantage to most of its competitors, lagging Dell (nasdaq: DELL – news – people ) and Hewlett-Packard (nyse: HPQ – news – people ) in PCs, and behind giants of consumer electronics like Sony (nyse: SNE – news – people ), retailers like Best Buy (nyse: BBY – news – people ) and Circuit City (nyse: CC – news – people ) and even innovative niche players like Apple Computer (nasdaq: AAPL – news – people ).
The supply constraint illustrates Gateway’s disadvantage in terms of scale. When supplies of sought-after components like flat-display panels or small disk drives are tight, the largest PC makers get first dibs on whatever is available. The biggest PC makers also get the best pricing on components, including Intel’s (nasdaq: INTC – news – people ) semiconductors and Microsoft’s ( nasdaq MSFT) software.
“They are victims of their size,” says Roger Kay, IDC analyst, of Gateway.
Gateway cannot be all things to all people. Its cost structure is too high for the company to try to be in all these markets: low-end and high-end PCs, networking, consumer electronics and services. A 50-50 split of PCs and consumer electronics sales is doable, but Gateway must move fast (and stop shocking the market by missing its own financial targets), or investors will deservedly lose all confidence in its ability to pull off a transformation.
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