Gateway, Inc.

History

Gateway was founded on September 5, 1985, on a farm outside Sioux City, Iowa, by Ted Waitt and Mike Hammond. Originally called Gateway 2000, it was one of the first widely successful direct-sales PC companies, utilizing a sales model copied from Dell, and playing up its Iowa roots with low-tech advertisements proclaiming "Computers from Iowa?" Gateway built brand recognition in part by shipping computers in spotted boxes patterned after Holstein cow markings. In 1989, Gateway moved its corporate offices and production facilities to North Sioux City, South Dakota. In line with the Holstein cow mascot, Gateway opened a chain of farm-styled retail stores called Gateway Country Stores, mostly in suburban areas across the United States. It dropped the "2000" from its name on October 31, 1998.

Gateway became a leading manufacturer of personal computers and was a pioneer in developing and engineering several products that continued to move Windows-based computing forward throughout its history. In the early nineties, Gateway 2000 introduced one of the first practical portable computers, the Nomad. Shortly thereafter, the first practical Windows sub-notebook, the Handbook, became standard issue to reporters at the Washington Post. With the assistance of Toshiba Corporation, Gateway 2000 released the 486-based sub-notebook the Liberty, and one of the first industry standard Pentium-based notebooks, the Solo. Both the Handbook and the Solo competed directly with Apple's Newton and PowerBook models.

In 1997, Gateway 2000 released The Destination, the first version of a smart TV, which included a 32-inch monitor and Harman Kardon surround sound. The $7,500 system had a shipping weight of over 300 lbs. A pet project of Waitt's known by some employees as the Lisa-Nation, a reference to Steve Jobs early Apple Computer failure, Gateway tried to partner with east coast electronics retailer Nobody Beats the Wiz to market the product, and was thought to be one of the primary reasons for proliferation of Gateway Country Stores which, many believe was the reason for the company's ultimate failure.

Gateway 2000 was also an innovator in low-end computers with the first sub-$1,000 name-brand PC, the all-in-one Astro. With the Astro's introduction, Gateway also introduced Gateway for All, the industry's first sub-prime financing program.

Throughout its history, Gateway attempted to move the stodgy IBM PC model in more home-/consumer-friendly machines. Gateway was the first major manufacturer to offer a suite of family-friendly software as an alternative to Microsoft Office, the first to include optical drives as standard equipment on all of its machines, and the first to include high-end speakers with the purchase of a sound card (like the Boston Acoustics Digital BA735). Through its innovative case design, Gateway was able to reduce the need for high-wattage power supplies and fans, allowing their machines to run cooler and quieter.

AOL acquired Gateway.net, the online component of Gateway, Inc., in October 1999 for US$800 million.

To grow beyond its model of selling high-end PCs by phone, and to attract top management and engineers, Gateway relocated its base of operations to La Jolla, California, in May 1998. In an effort to cut operating costs, Gateway made another move, this time to Poway, California, in October 2001. After acquiring eMachines in 2004, Gateway again relocated its corporate headquarters, to Irvine, California.

Gateway purchased the remaining Commodore and Amiga assets from Escom in 1997. It licensed the patents to Amiga, Inc. in 1999, retaining ownership over them until their eventual expiration. The trademarks and copyrights were sold by Gateway to Amiga in the same year.

Gateway struggled after the dot-com bust and tried several strategies to return to profitability, including withdrawal from international markets, reduction in the number of retail stores and most significantly, entering the consumer electronics business. However, amid widespread complaints about its reputedly poor customer service, none of these efforts was particularly successful from a financial standpoint, and Gateway continued to suffer major losses as well as market share in the PC business. By April 1, 2004, Gateway had announced that it would shut down its 188 remaining Gateway Country Stores.

Gateway outsourced some of its operations, such as customer support. In 2002, Gateway expanded into the consumer electronics world with products that included plasma screen TVs, digital cameras, DLP projectors, wireless Internet routers, and MP3 players. While the company enjoyed some success in gaining substantial market share from traditional leaders in the space, particularly with plasma TVs and digital cameras, the limited short-term profit potential of those product lines led then-CEO Wayne Inouye to pull the company out of that segment during 2004. Gateway still acts as a retailer selling third-party electronic goods online.

On March 11, 2004, Gateway purchased low-cost PC marketer eMachines, for US$30 million in cash and 50 million shares of stock, valuing the deal at approximately US$262 million with announced intentions to keep the eMachines brand. Gateway had hopes that eMachines' retail channel strength would complement its own strengths in consumer and business direct channels. Through the deal, founder Ted Waitt turned over day-to-day responsibilities and the CEO role to eMachines' CEO, Wayne Inouye, and remained as chairman through May 2005. Inouye announced his resignation as CEO on February 9, 2006; Chairman Rick Snyder served as interim CEO until September 7, 2006, when J. Edward Coleman was brought in as the new CEO. At that point, Gateway still sold both Gateway and eMachines brand computers through retail vendors such as Circuit City, Best Buy, TigerDirect, Walmart, and CompUSA. Its Gateway brand products continued to be available in direct channels.

Gateway resourced customer support within North America, priding itself as "100% North America-based support". Gateway also moved build-to-order desktop, laptop, and server manufacturing back to the United States, with the opening of its Gateway Configuration Center in Nashville, Tennessee, in September 2006. It employed 385 people in that location. As of April 2007, Gateway notebook computers were produced in China and its desktops had "made in Mexico" stickers.

On September 4, 2007, Gateway announced that it had signed a definitive agreement to sell its professional business segment to MPC Corporation. This includes the company's Nashville-based configuration center.

On October 16, 2007, Acer completed its acquisition of Gateway for US$710 million. J. T. Wang, the company's chairman, said in a statement that the acquisition "completes Acer's global footprint, by strengthening our U.S. presence." Its final share price of US$1.90 was far below the US$4.00 average price in the mid-1990s and drastically below a high of US$84 in late 1999. The US$1.90 per share was just barely over half of the split-adjusted IPO price of US$3.75 in 1993.

On July 27, 2008, Gateway ended all direct sales from Gateway.com and all phone orders. All new Gateway products could now only be purchased from major retailers and on other online sites.

On August 14, 2009, Gateway relaunched their brand in Australia after a long absence from that market. They started with the sale of laptops and netbooks, and Gateway launched their desktop line in sync with the launch of Windows 7.

In December 2011, Acer announced that the Gateway brand would cease on all server and storage equipment as of the first quarter of 2012; it was replaced by Acer Business. Gateway has started direct sales again through the Acer Store.

Previous hardware

In September 2002, Gateway entered the consumer electronics market with aggressively priced plasma TVs. At the time, Gateway's US$2,999 price for a 42" plasma TV undercut name brand competitors by thousands of dollars. In 2003, the company expanded the range of plasma TVs and added digital cameras, MP3 players, and other devices. By early 2004, in terms of volume, Gateway had moved into a leadership position in the plasma TV category in the United States. However, pressure to achieve profits after the acquisition of eMachines led the company to phase Gateway-branded consumer electronics out of their product line.

Business model

Gateway directly, and indirectly, sold its products to third-party retailers, consumers, businesses, government agencies, and educational institutions.

According to the 2005 Annual Report, Gateway had three major business segments: Direct, Professional, and Retail.

According to the 2005 Annual Report, "The retail channel has become Gateway's largest distribution channel." Gateway used to run a retail chain of stores selling their products, however these were closed down in 2004.

Gateway competes mainly against Hasee, Dell, Hewlett-Packard, Apple Inc., Lenovo, Sony, and Toshiba. In particular regions and outside the United States, Gateway competes with Fujitsu.

Organization

A six-person Board of Directors ran Gateway prior to the acquisition by Acer. The former board included chairman Rick Snyder, former interim CEO, George Krauss, Douglas Lacey, Joseph Parham, Jr, Quincy Allen, David E. Russell, and Scott Galloway. Shareholders elect the board members at meetings, and those board members who do not get a majority of votes must submit a resignation to the board, which will subsequently choose whether or not to accept the resignation. The corporate structure and management of Gateway extends beyond the board of directors.

On September 7, 2006, the Board of Directors announced the appointment of J. Edward Coleman as chief executive officer. Coleman replaced Snyder, who served as interim CEO since February 2006, and was Chairman of the Gateway Board of Directors.

On October 16, 2007, the acquisition by Acer became final and Gateway became a privately held company and a wholly owned subsidiary of Acer. The board of directors resigned and a new board was appointed.