Competition? Bring It On, Confident CEO Says
After losing more than $1.8 billion selling computers over the last three years, Gateway Inc. is hoping to return to profitability by peddling consumer electronics products such as flat-panel television sets, digital cameras and DVD players. Co-founder and Chief Executive Ted Waitt hopes his company’s network of retail stores will drive customers to these higher-margin products, many of which are designed to complement Gateway’s PCs.
But the same industry giants that sliced PC profits paper-thin -- Dell Inc. and Hewlett-Packard Co. -- are threatening to do the same with other electronic gadgets. Dell followed Gateway into consumer electronics with its September rollout of flat-panel TVs and digital music players, and HP is expanding its offerings as well.
Now Waitt faces intense competition as he tries to prove he can make more money on consumer electronics than he has on PCs. He recently spoke to The Times in his office at Gateway’s headquarters in Poway, Calif., and explained why he’s not afraid of the competition.
Question: You’ve said you plan to launch 50 products in 15 new categories this year. But with Gateway’s string of losses, isn’t it risky to spend so much on new products?
Answer: Yes, but you can’t stand still. The reality of the situation is that Gateway’s business model needs to be rebuilt. And that’s what we’re doing. The economics of the PC by itself are very, very challenging economics. You used to make $500 on a PC. Now, call it 50 bucks. So for us to launch 50 products is not a significant risk -- it’s what you have to do.
Q: Why will some of those products be consumer electronics products?
A: The consumer electronics world is kind of uncharted territory. It’s a lot different on the supply side and the product side, and you can innovate a lot more, frankly, because it’s not controlled by Intel [Corp.] and Microsoft [Corp.]. These products are not static products, and they’re very unique products.
Q: Gateway is known for ferreting out products made in Asia, putting its brand name on them and getting them to market quickly. That approach allows you to bypass the research-and-development and design phases that full-fledged consumer electronics companies such as Sony Corp. and Samsung Electronics Co. have to go through. Do you see that as part of your advantage?
A: We have the capabilities to move very rapidly, much faster than the consumer electronic businesses do. That’s why you see all the PC companies, whether it be HP or Dell, looking at the consumer electronics business, because we can just move faster. We’ve got all the sourcing capabilities; we’ve got the supply chain capability, the logistics capability, the service capability. And we happen to have an added asset, which are our own stores. So we can control the customer experience from beginning to end.
Q: Does it make you shake in your boots when you hear Dell say they’re going to push into consumer electronics?
A: That doesn’t bother me. A competitive world is a free world. They can do whatever they want.
Q: What about music? Apple Computer Inc. and Dell have music download services, and HP plans to launch one in January. Will you be following suit?
A: You’ll see something from us. We’re working with a variety of people. Whether we do it ourselves or partner with somebody, you’ll definitely see something from us in that space.
Q: Unlike other computer makers, Gateway maintains retail stores. Do you think that will help you make the transition into consumer electronics?
A: They were built essentially as PC showrooms. But when you get into this convergence world down the road, people are going to need to see, feel, touch those types of products.
Q: You’ve got 190 stores all over the country. Can they help you in any other ways?
A: There’s a huge opportunity for us to leverage our local presence with our stores into the small and mid-size business market. That market tends to be dominated not by the big guys but by the little “white box” guys -- the guy that’s got a little PC shop and puts them together on the corner, and they go in and service people. For someone to take a national brand with that local presence, there’s a big opportunity for us there.
Q: Is selling Gateway or merging with another company a possibility?
A: I’ve said before that the company’s not for sale. We’re doing what we can to grow the business, and we’re actually pretty excited about the opportunities.
That said, you always look at all your options. From a fiduciary responsibility [point of view], I’d entertain anything. But from a standpoint of operating this business, we’re not actively out looking or talking to anybody.
We’re going to get this business back to profitability as quickly as we can. We’ve got a great product line. We’ve dramatically changed the infrastructure of the business. If we were looking to sell the business, we wouldn’t have gone to all the effort to make all the changes that we have and been working so hard.
