Gateway

Gateway Inc.

Issues:

* The US personal computer market continued to struggle and Dell had just lowered its prices about 20%. As a result, its stock price rose 13% and it gained more market share.

* How should Gateway respond to Dell and its recent price cuts?

o Lowering Gateway prices could jeopardize gross profit margins

o Conversely, unit sales were already down so there was the threat of additional sales loss

* Resource Allocation:

o Should Gateway focus on US consumer sales more or US business sales?

§ Keeping in mind that Gateway planned to discontinue company-owned operations outside North America at the end of 2001

o How should Gateway run its sales and advertising operations? (Keeping in mind, the 2001 advertising budget is about $20 million less than in 1999 at $239.6 million)

§ How much emphasis should be placed on PC's and PC-related units v. "beyond-the-box" products and services?

§ Where should Gateway's marketing efforts be directing customers: telephone and its website or to its Country Stores?

* Operating issues in regards to selling, general and administrative (s, g, a) expenses:

o Overall company s, g, a expenses would decline due to:

§ Closing of North America manufacturing, sales and service operations

§ Reduction in the number of Country Stores

§ Less advertising fees and expenditures

§ End of alliance with OfficeMax

o However, decisions about continued s, g, a expenses still needed to be made:

§ Does the Gateway store concept need more thought pertaining to Gateway's business model of operating as built-to-order?

* Gateway's gross margin and operating costs needed attention in order to once again be profitable

o The influential aspects among its customer sales mix, its product sales mix and its sales mix across its 3 distribution channels needed to be monitored and viewed as crucial elements to Gateway success

Strengths:

* 2000, Gateway claims over 20% market share as one of the top 2 PC manufacturers in the US.

o 2001, deemed most admired US computer and office equipment firm by Fortune

* 2000, operating income of $511 million on net sales of $9.6 billion

* Through 2000, Gateway has shipped over 21.6 million PC's

* 1999-2000, international sales were 14% to total sales

* Gateway Country Stores act as a "showroom" where potential customers can test products and have their questions answered by knowledgeable representatives.

o Here, Gateways emphasizes information transference, product demonstrations, servicing, the creation of customer relationships and training.

* 2001, small/medium-sized business sales increased 13%

Weaknesses:

* 2000, 14% decline in year-end annual operating income and a $25 million operating loss in 4th quarter

* Customers don't have the option of buying a Gateway PC in its stores

o However, they can have them custom made and shipped home or to their businesses within 5 days

* 2000, Telephone and Internet sales dropped to 65% of total revenue

* 2000-2001, PC unit shipments severely decline across overall industry

* The average price of PC's continues to decrease overtime with largest decline in desktops.

* 2001, Gateway sales down--operating loss of $576 million

o Gateway Europe and Asia Pacific saw decreases of 38% and 32% in revenue

o Restructuring decisions regarding special charges were responsible for $533 million of loss and sold its outstanding loan portfolio

Opportunities:

* 1993, European expansion began in Ireland with a sales, service and production facility and by 2000, Gateway had expanded into most of Western Europe.

* 1995, Gateway introduced its line to Asia Pacific and by 2000, had begun manufacturing in Malaysia, Australia, New Zealand and Japan.

* 1996, Gateway became the 1st to offer customers the option of custom ordering and paying for a PC via the Internet.

o This opened up an entire new market that spanned across the world.

* 1999, entered Canadian market

* Gateway's products are "custom-configured" to match the needs to its customers and come ready to use with various software applications already installed.

o Gateway also offers a line of "beyond-the-box" products i.e. monitors, printers, 3rd-party software titles, Internet access services and financial/training/support programs.

§ 2000, "beyond-the-box" product sales increased to 20%

* 2000, alliance with AOL helped expand Internet-related income including "beyond-the-box" products

* Gateway offers its products through 3 different complementary distribution channels: telephone sales, its web site and its Gateway Country Stores.

o In 1996, Gateway had only 2 stores operating, but by 2000, it had 327. The majority of its US stores (85%) were located within a 30-minute drive

o These channels are thought to provide a competitive advantage in 3 ways:

§ Competitive pricing by avoiding costs from distributors, dealers and retail stores.

§ Avoid inventory costs because only products that are ordered are manufactured

§ Increase