Acer Will Target Consumers with New Gateway Brand

Retail consumers in the U.S. could begin to see great deals on computer purchases as PC vendors get more competitive in the wake of Acer Inc.'s announcement on Monday that it plans to buy Gateway Inc.

Acer will probably try to reinvigorate the Gateway brand, using spiffier designs and faster processors in an effort to add cachet to Gateway and eMachines labels which are often seen as "bottom dwellers" selling low-cost PCs, said J.P. Gownder, a principal analyst with Forrester Research.

In announcing the deal, Acer President Gianfranco Lanci said he planned to preserve Gateway's "powerful and unique brand" in order to cover a variety of consumer market segments, differentiating the two brands over time in an effort to reach a broader variety of consumers.

By announcing its plan to concentrate on the U.S. retail market, Acer is signaling that it will not challenge far larger vendors like Hewlett-Packard Co. and Dell Inc. for corporate enterprise deals. Acer also said on Monday that it planned to divest Gateway's professional business division, and was already in talks with a potential buyer.

That strategy will probably have a far greater impact on Acer's long-time rival Lenovo than on larger vendors, Gownder said.

"For HP and Dell, it's going to be two years before this makes an impact on their business," Gownder said. "Lenovo is the company that really loses here, especially if Acer is able to pick up Packard Bell and get a foothold in Europe, as well." On Aug. 7, Lenovo Group Ltd. announced it had agreed to buy Packard Bell BV, but that deal appears to be scuttled: part of Monday's news was that Gateway will exercise its right of first refusal to acquire shares in Packard Bell's parent company.

In addition to tripping up its rival Lenovo, Acer will gain valuable retail leverage in the U.S., including Gateway's online retail site and its shelf space in major retailers like Best Buy Co. Inc., Gownder said.

Still, Acer faces a large workload in creating a successful merger with Gateway before it begins to reap profits from the move. "Acer has made a smart, imperfect decision. But from what's available to them, it was the best move on the chessboard," Gownder said.

Acer now faces pressure to duplicate its success among small business customers and Asian markets in the competitive U.S. retail market, other analysts said. Acquiring Gateway could give it the leverage to succeed, but only if Acer completes a difficult merger, said Charles Smulders, an analyst and managing vice president at Gartner Inc.

First, Acer must make sure it retains Gateway's staff in the U.S. channel and retail sectors, while divesting the money-losing professional business, he said. That move would have little effect on Gateway's small stake of the corporate enterprise market, but a larger impact among its government and academic customers.

Then, Acer could dedicate its engineers to improving Gateway's image as an economy brand. "The Gateway brand is very well known, but people are unclear what it stands for. So that is one challenge Acer will face," Smulders said.

The company will probably try to establish a reputation for using the latest technology, as opposed to marketing Gateway as the brand with the best technical support or the lowest prices, he said.

To Acer's advantage, Gateway has been cutting costs for five years already, so that will be a much easier task than HP faced when it bought Compaq, Smulders said.

"I certainly think HP will be taking notes, simply because Acer has been gaining ground so fast, particularly outside the U.S. If Acer can pull this off, it would be a serious challenge to HP."

HP declined to comment on the possible implications of the deal. "HP does not comment on the business strategies of its competitors," said corporate spokeswoman Emma McCulloch.

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