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Gateway cuts low-end PC prices, targets niche audiences

The company will reduce the cost of two of its most popular computers and introduce a variety software and services packages to target groups such as first-time buyers and Spanish speakers.

Gateway is cutting the price on two of its most popular computers and is introducing a variety of software and services packages to target specific groups, such as first-time buyers and Spanish speakers.

The price cuts and new bundles serve two of Gateway's goals: to push deeper into the sub-$1,000 territory and to increase revenues from software, services, training and other "beyond-the-box" sources.

"We've seen a lot of growth in the sub-$1,000 space, and I'm not sure we've participated in that growth like we'd like to...This is a concerted effort on our part," said Cliff Holtz, senior vice president of Gateway's consumer division. "Less than 20 to 25 percent of our business is down there."

With the cuts, which take effect tomorrow, Gateway's basic consumer computer will drop $100 to a $799 price tag and come with a free year of Internet service from America Online. The other will drop $200 to its new price of $999.

Gateway will also begin to market software bundles that effectively tailor the computer for a specific interest or demographic group. A "value pack" for Hispanic consumers, for instance, comes with a Spanish version of Windows, applications and tutorials in Spanish, a printer, and links to Univision, a Spanish media conglomerate.

Other packages target first-time buyers, senior citizens, digital photography fans and people interested in recording CDs.

"You've heard us talk about customized PCs. We're now talking about a customized user experience," Holtz said.

These bundles, of course, ideally will also drive revenue. The bundles run anywhere from $99 to close to $499, although most cost $199 to $299, Holtz said. The bundle for Spanish speakers costs $299. Separately, the items included in that bundle would cost $455.

Beyond-the-box revenue is to Gateway what molded plastic is to Apple Computer. For the past two and a half years, Gateway has been one of the leaders in the industry for devising ways to extract more, and recurring, profit from the sale of PCs.

It was one of the first major manufacturers, for example, to find substantial success in selling Internet access with PCs. More recently, the company expanded both its free and fee-based training clinics.

In the second quarter, non-PC items accounted for 40 percent of the company's income.

With the discounts, Gateway's cheapest Essential PC for consumers will sell for $799, compared with the previous price of $899. The PC comes with a 633-MHz Celeron processor, 64MB of memory, a monitor, a 7.5GB hard drive and a free year of ISP service from AOL. The $899 version came with a 566-MHz Celeron and 32MB of memory. It also had a 15GB hard drive, however.

The company also has lopped the price of the Gateway Essential 733. That PC now comes with a 733-MHz Pentium III, 64MB of memory and a 17-inch monitor. It will sell for $999, compared with the previous price tag of $1,199.