Gateway slams its NZ portal

By MICHAEL FOREMAN

United States-based computer manufacturer Gateway delivered the bad news many had been expecting yesterday, revealing it is pulling out of the entire Asia-Pacific region.

The company plans to lay off a quarter of its 24,600 worldwide staff, including 650 in Malaysia, Australia, Singapore and New Zealand, as it simultaneously closes its manufacturing and sales operations in the region.

The move comes less than 18 months after Gateway tried to revive its flagging fortunes here by striking a deal with The Warehouse that significantly increased its number of sales outlets.

The company has quit Japan and has begun mandatory employee consultation that will allow it to pull out of Europe.

It also plans to reduce its staff in the US by 15 per cent.

It says the cuts are necessary to restore profitability in "rapidly changing PC market conditions" which cut its second-quarter sales to $US1.5 billion from $US2.2 billion last year.

Gateway entered the local PC market in 1997, but did not achieve a significant market share until it acquired local assembler PC Direct the following year.

At its high point in 1996, PC Direct employed 200 people and turned over $100 million a year.

Former PC Direct chief executive David McKee Wright said yesterday that the company began to struggle once Gateway took over because of increased competition from overseas manufacturers.

Doug Wilson, an information technology consultant who was at the helm of Gateway NZ from April to December 1999, said PC Direct's market share had dropped to 5 per cent and was losing money "quite badly". It had required radical surgery.

Contrary to the reported $7 million, Mr Wilson said $2 million was pretty close to the price Gateway paid for PC Direct.

"They got it quite cheaply but then the company was losing between $250,000 to $300,000 a month during part of that period."

Staff numbers were slashed from 110 to 25, but it never regained PC Direct's former market share.

Mr Wilson blamed the company's American managers for being reluctant to spend money promoting the brand.

"Huge investments were made in the United States in branding and cracking into the corporate market," he said.

"But with New Zealand being such a small country, we didn't get our share of that and the company just wasn't big enough to take on Hewlett-Packard and Compaq."

IDC hardware analyst Darien Bird said Gateway sales had been fairly quiet in New Zealand for some time and it had hovered around number 10 for about two years.

One of its weaknesses was that it did not diversify into the corporate market.

"Compaq and Dell, for example, are actively targeting the small and medium business market as well as large companies, so even if they aren't doing especially well in the home market they can still keep their heads above water."

Mr Bird thought it was unlikely any other multinational vendors would pull out of the market this year.

Despite the slowdown of the PC market in the US, IDC was sticking to its prediction that sales would grow by 3 per cent here this year.

"New Zealand has a very robust economy at the moment and business confidence is high.

"The second reason is that we've got a much lower penetration rate in this country, which allows more head room. We have 0.52 PCs per household against 0.64 in the US."

Warehouse Stationery general manager Rob Smith said the sales had gone exceptionally well.

"They are a great consumer product and Gateway is one of the leading manufacturers in the world. Unfortunately they just couldn't make the process work outside the US."

Mr Smith said Warehouse Stationery would continue to sell computers and had begun offering the Hewlett-Packard range from last weekend.

The company was also exploring "other options" but he would not say what these were.

Mr Smith said Warehouse Stationery would sell its stocks of Gateway PCs but he did not envisage a clearance sale.

"We don't see a necessity for that.

"Their current price is one of the hottest price points around and they are just flying out of the door."

Gateway