Gateway learns a lesson from iMac

Gateway will renew its battle with Apple Computer for consumer business next week with a new PC built around a flat-panel monitor.

Poway, Calif.-based Gateway plans to release its new Profile 4 systems on Aug. 26, the same day Intel is scheduled to launch the 2.8GHz Pentium 4 processor, said sources familiar with both announcements. Three Profile 4 models will be available, with prices ranging from $999 to $1,999.

The new Profile 4 models are priced to compete with Apple's flat-panel iMac, which also is built around a liquid-crystal display (LCD) monitor. Apple unveiled the 15-inch flat-panel iMac in January, adding a 17-inch flat-panel model in July.

"Gateway is going after the popularity of the LCD in the all-in-one space--and that's where Apple rules," said ARS analyst Toni Duboise. "There's no doubt about it. These systems are priced to compete directly with Apple."

Profile 4 is the result of Gateway's recent platinum PC redesign, which uses a design reminiscent of Apple's Titanium PowerBook. Gateway plans to launch a splashy advertising campaign next week around Profile 4 and the new design, sources said.

Gateway got into the all-in-one business with its original Profile PC in June 1999, released shortly after Apple's first iMac system. The new model comes nearly two years after the release of Profile 3, which Gateway retrofitted with touch-screens for use during the 2002 Winter Olympic Games.

Profile 4's predecessors were fixed systems, meaning consumers could only buy the configurations offered by Gateway. But the new all-in-one will be configurable, giving buyers the opportunity to beef up the processor, hard drive and some other components, sources said.

Gateway plans to offer three basic models. The high-end Profile 4XL will come with a 2.66GHz Pentium 4 processor, 17-inch flat-panel monitor, 512MB of double-data rate (DDR) SDRAM, 120GB hard drive, CD-RW/DVD combo drive, USB 2.0 and Windows XP Home. Gateway planned to offer the 2.8GHz Pentium 4 processor as an extra-cost upgrade, but the company could still chose to offer the higher-clock-speed chip as standard over the 2.66GHz processor, sources said. The XL model would sell for $1,999.

The midrange model, the Profile 4X, would pack a 2.4GHz Pentium 4 processor, 17-inch flat-panel monitor, 256MB of DDR SDRAM, 40GB hard drive, CD-RW drive and Windows XP Home for $1,499. The $999 entry-level model, the Profile 4SE, would come with a 1.7GHz Celeron processor, 15-inch flat-panel monitor, 128MB of memory, CD-ROM drive and Windows XP Home.

The pricing of the systems seem to be aimed more at Apple than at other competitors, said analysts. Apple's high-end iMac, selling for $1,999, comes with an 800MHz PowerPC G4 processor, a 17-inch wide-screen flat-panel display, 256MB of SDRAM, an 80GB hard drive, a DVD recording drive and Mac OS X. The $1,499 model comes with a 700MHz PowerPC G4 processor, a 15-inch flat-panel monitor, 256MB of RAM, a 40GB hard drive, a CD-RW/DVD combo drive and Mac OS X. The entry-level model, at $1,299, is nearly identical but comes with only 128MB of SDRAM and a CD-RW drive.

Industry sources say Gateway has closely matched two of the iMac model's prices, while offering processors with greater clock speed or added extras. The Profile 4XL comes with twice the memory of the high-end iMac and a hard drive that is one-third larger. The X model is nearly identical in memory and storage to the $1,499 iMac, but offers a larger monitor. The Profile 4SE's biggest advantage is price: $300 less than the low-end iMac.

Differences matter
Both Apple and Gateway have a high profile with consumers and operate retail stores for promoting or hawking their wares. But Apple has some advantages over its PC rival.

Two of Apple's four flat-panel iMacs come with DVD recording drives--or SuperDrives--and last week the company added the technology to its $1,499 eMac, an all-in-one computer built around a cathode-ray tube (CRT) monitor. In fact, "about 50 percent of our iMac customers buy up to the SuperDrive," said Greg Joswiak, Apple's senior director of worldwide hardware product marketing.

None of the Profile 4 models come with DVD recording drives, nor does Gateway offer the technology as an upgrade, sources said.

"It's a mistake not to have the DVD rewritable drives," Duboise chided. "That's the one advantage Apple is going to hold over them. The all-in-one Profile is a multimedia-enhanced machine, and without that DVD rewritable a big piece is missing."

The design of the Profile 4 systems cannot accommodate the size of a DVD recording drive, sources said. Much could change later in the year when Pioneer Electronics releases a smaller version of its DVD-R/RW drive suitable for notebooks. That drive may have the ability to fit into Profile 4. Apple also offers the Pioneer DVD recording drive on eMac, flat-panel iMac and the Power Mac. Last week, Apple released a new version of Power Mac, the company's professional system, with twin processors ranging up to 1.25GHz.

Apple also may be able to convince future customers that the iMac has superior graphics. Three of the iMac models come with 32MB Nvidia GeForce2 MX graphics accelerators, and the top-of-the-line system packs the higher-end GeForce4 MX. All three Profile 4 models rely on the integrated graphics supported by Intel's 845 chipset.

Duboise faulted Gateway for offering only a CD-ROM drive on the entry-level Profile 4 and CD-RW drive on the $1,499 model. The flat-panel iMacs include at the low end a CD-RW drive and CD-RW/DVD combo drive at the higher price.

Gateway does have one advantage over Apple: Timing. Apple launched iMac during a LCD supply crisis, which contributed to an early shortage of the trendy computer and compelled the company to raise prices by $100 in March. Gateway, by contrast, will benefit from falling LCD prices, in a reverse of a 10-month trend.

Waging a price war
Profile 4 isn't Gateway's only weapon in its arsenal for combating Apple. The PC maker has taken a slash-and-burn approach to selling computers with connecting flat-panel monitors. The Gateway 500S, for example, comes with 17-inch LCD monitor for just $1,299. A year ago, the monitor alone would have cost the same price or more.

"That's killer," Duboise said. "It's clear Gateway is waging a price war here and wants to dominate the computer with LCD monitor space. That's not good news for Apple, or anyone else."

The 500S comes with a 2GHz Pentium 4 processor, 256MB of SDRAM, 80GB hard drive and CD-RW drive, besides the 17-inch LCD monitor. Duboise noted that Gateway sold the system for $1,554 at the beginning of August.

"This price is unbelievable and can only be in response to the 17-inch iMac Apple launched last month," Duboise said. She noted that a consumer would typically pay anywhere from $560 to $800 more for a 17-inch flat-panel display purchased with a configurable system.

Gateway's advantage just isn't over Apple. The 500S is $400 less than a similarly configured Dell 4500S, which would sell for $1,699, Duboise noted.

Gateway spokesman Brad Williams, who would not comment on Profile 4, said, "We price against many competitors, not just any one."