Gateway to expand into Canada, elsewhere

The personal computer manufacturer plans to expand its marketing and sales efforts into select countries in the coming year as part of a push to keep its growth trajectory going.

Michael Kanellos Staff Writer, CNET News.com
Michael Kanellos is editor at large at CNET News.com, where he covers hardware, research and development, start-ups and the tech industry overseas.
Michael Kanellos
3 min read
SAN FRANCISCO--In an effort to maintain its revenue growth and combat declining PC prices, Gateway will embark on a world tour this year.

The San Diego-based personal computer manufacturer will expand its marketing and sales efforts into select countries in the coming year, said John Todd, the company's chief financial officer, at the Banc of America Securities Conference here. The expansion effort will kick off with an intensified push into Canada in two weeks, or soon thereafter. A launch into Mexico will come later in 2000, he said.

The effort, of course, won't be easy. Nearly every major PC company is eyeing the global market, especially because PC penetration is lower in companies outside the United States.

Direct sales of PCs--the method of choice for Dell, Gateway and others--also remains a relatively new concept. Still, these companies see this, as well as an expansion into additional services, as necessary to counter the decline of computer prices.

"You're not going to see Gateway around the globe, but you're going to see us add four to five countries," Todd said.

Although Gateway already sells products overseas, the upcoming effort will revolve around creating a greater physical, telephonic and Web network in international markets. Approximately 10 Gateway country stores will be opened in Canada by the end of the year, a representative said.

Additionally, the company recently entered into a two-year partnership with ComputaCenter in Europe to create store-within-a-store environments. By 2001, Gateway hopes to be getting 25 percent of its revenue from outside the United States.

"They are moving in the right direction," said Schelley Olhava, an analyst at International Data Corp. "They're focusing on different areas and are no longer relying on the box to make money."

International expansion comes amid Gateway's transformation from being a supplier of PCs to a provider of a complete technology package that can provide everything from software and training courses to ISP service and networking equipment.

The switch, which kicked off approximately a year ago, appears to be working.

"Sixty percent of our customers attach something at the point of sale," Todd said, meaning that most buy something beyond the PC.

In one telling figure, he said that the average selling price of Gateway PCs would drop 11 percent this year, from $1,845 in 1999 to $1,641 in 2000. Profit per machine, however, will rise from $127 to $132.

Analysts estimate that the company could report earnings per share of $1.93 for the year, up from dampened 1999 earnings per share of $1.32. ISP revenues will also likely play a significant part in any growth. Late last year, Gateway signed a complex cross-marketing deal with AOL. Among other provisions, AOL replaced UUNet as the backbone provider for the Gateway.net service.

Using AOL will mean fewer costs, and hence higher profits, on Gateway.net. The company also expects to see a boost in subscribers. Last year, the company was gaining roughly 200,000 subscribers per quarter to Gateway.net, he said. This year, the figure could rise to 400,000.

Advertising revenue from Gateway.net's portal will also increase. "The profit of the Gateway.net portal will be at or above the industry average," Todd said.

AOL additionally opens up new categories of buyers to Gateway. "We have preferred placement to those 23 million subscribers" on AOL's portal.

"We want to build the 'beyond-the-box' business segment. We want to build it in Europe and we want to build it in Asia," he said. "We will add 100 plus stores worldwide. The only constraint is real estate."

News.com's Jim Davis contributed to this report.