Goodbye, Gateway Asia and Europe?

As it continues to revamp its business, PC maker Gateway is reevaluating whether to stay in any of its overseas markets.
Written by Ian Fried, Contributor
As it continues to revamp its business, PC maker Gateway is reevaluating whether to stay in any of its overseas markets.

In recent months, Gateway has outlined a new strategy focused on selling PCs, software, accessories and training as a "solution" to consumers and small businesses. Gateway spokeswoman Donna Kather said Wednesday that the company believes the strategy will work in the United States but added that Gateway is in the process of assessing whether the strategy can be profitable and achieve the company's growth targets in other regions of the world.

"What we are currently doing is looking at our ability to do that on a market-by-market basis," Kather said. "If we decide upon further evaluation (that we can't reach those goals), it could mean a major restructuring or even a withdrawal from that market."

International sales--primarily from Europe and Asia--accounted for 12 percent of Gateway's US$1.5 billion in net sales for the three months that ended in June, according to the company's latest quarterly filing with the Securities and Exchange Commission.

San Diego-based Gateway is also evaluating whether to outsource more of its manufacturing and close some of its plants, although Kather said no decisions have been made in that regard either.

Gateway Asia Pacific--which comprises Singapore, Hong Kong and Malaysia, employs between 400 and 500 people. It has a 180,000 square-foot plant in Malacca, with 400 workers. The staff at the facility had been left intact during a massive restructuring exercise in the region in July. The revamp saw the departure of between 240 and 250 staff.

Since the beginning of the year, Gateway has replaced its chief executive, overhauled its management team, announced massive job cuts and dramatically scaled back the number of configurations of PCs it sells.

The company has also announced plans to consolidate its business and consumer PC divisions, a move that has led to further job cuts in recent weeks, Kather said.

Eventually, Gateway plans to offer consumers only a few dozen models of PCs, down from the millions of configurations once available and the hundreds of systems the company currently offers. Kather said the company will continue to offer more options in the education and small-business markets.

According to a report in the Financial Times, the company has begun the consultative process that is required by British law before deciding to shut down UK and Ireland operations, which have a combined headcount of 1,000.

Needham & Co analyst Andrew Scott said he expects the company to pull out of Europe entirely, which should help the company's financial picture. Still, he added, the main issue for the company is how it handles its core US business.

"The real question is: Will they be able to exploit the (US) Gateway Country stores to (sell) higher margin services to their customers? I think that is what investors should focus on," Scott said.

Kather said Gateway is not planning any more mass closures of its Gateway Country stores in the United States. Earlier this year, it shuttered about 10 percent of its US stores.

"We still have right around 300 (US stores). We think that is about the right number," Kather said. "Stores are key to our local-market strategy."

The company, which has also closed some overseas stores, may shutter more of its 56 remaining international shops if it decides to pull back or exit some overseas markets, Kather added.

"It would be part of that evaluation of each of those markets."

Goldman Sachs analyst Joe Moore said in a research note last week that he expects Gateway to pull back from overseas operations. Moore noted that the company's international units had generated operating losses for the past three fiscal years.

"It seems increasingly likely that the company could exit these international markets altogether," he said.

Singapore staff contributed to this report.

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