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Gateway's new approach on cheap notebook

The PC maker is forsaking its build-to-order capabilities with a new low-cost notebook, as it moves away from the business of assembling and customizing the system after the customer places an order.

Gateway is putting the old adage, "If you can't beat 'em, join 'em," to test with its new cheap notebook.

The San Diego-based PC maker today came out with the Solo 1100, a $1,200 notebook for the consumer market. But to hit that low price, Gateway is forsaking its build-to-order capabilities where it assembles and customizes the system after the customer places an order.

Instead, Gateway will build non-custom notebooks in bulk and stockpile them in inventory, similar to how Compaq and others manufacturers have made things for years.

"This is not a build-to-order machine," said Andy Klopstad, Gateway Solo product marketing manager, who added customers could get the portable in four days from order.

Direct manufacturers like Dell Computer and Gateway typically build systems after a customer places an order, detailing the buyer's specifications. Indirect competitors, such as Compaq and Hewlett-Packard, rely more on retailers who sell pre-built systems to their customers. While building computers to order cuts down on inventory expenses, it can add costs in customization.

In moving down into the $1,200 notebook price range, Gateway had to take lessons from its indirect competitors to compete against them. Besides Compaq, Gateway also learned something from Emachines, said International Data Corp. analyst Schelley Olhava.

"If you look at the Emachines' strategy, whose bread and butter is selling low-cost machines, originally they only had three configurations," she said. "Their whole thing was, in order to drive those units out the door, they couldn't go with a build-to-order strategy. It was too expensive."

Gateway recognized it is hard to make money on build-to-order systems priced in this range, Olhava said. "This allows them to move enough volume to offer a low-cost notebook and still make money."

By offering one standard configuration for which it can stock consistent parts, Gateway can take some cost out of production, said PC Data analyst Stephen Baker.

For Gateway, the notebook is part of a growing assault on the retail market, fueled in part by 230 Gateway Country Stores. While Gateway does not sell systems at the stores, customers can preview and order systems as well as extended warranties and other services. 100 to 150 Country stores will be added this year, CFO John Todd has said.

"Based on a competitive analysis of the marketplace, we feel this is an aggressive product for us that now allows us to compete with the CompUSAs and BestBuys with a Gateway branded product," Klopstad said.

Like similarly priced portables, the $1,200 Solo 1100 is not a luxury portable. The Solo 1100 comes with an Intel 433-MHz Celeron processor, 12.1-inch dual-scan color display, 4.8-GB hard drive, 32-MB of RAM expandable to 160 MB, integrated CD-ROM and floppy drives and 56K modem.

Klopstad said that customer feedback through Gateway's YourWare program led to the Solo 1100. "This is getting the mobile platform down to a price where clients haven't been able to get one through normal channels."

The new Solo is not geared for gamers or business users, who might demand more performance and the capability to upgrade components. Gateway expects the notebook will attract first-time users, buyers on a budget and students.

Like Compaq's lower-cost Presario notebook models and Apple's iBook, the Solo is especially targeted at students. Gateway realized it missed an important market opportunity during the 1999 back-to-school buying season.

Compaq and Toshiba currently lead in the retail consumer notebook market. Together, the two accounted for nearly 70 percent of retail consumer notebook sales, according to NPD Intelect, although the poll did not take Dell or Gateway sales into consideration.

But Gateway may find Compaq, the market leader in notebooks selling below $1,500, is a tough competitor, Baker said. Compaq, with a year's lead in the low-cost notebook market, can cull tremendous brand awareness and its vast retail presence to offset any threat Gateway poses.

Compaq in December topped the retail consumer notebook market with the Presario 1247, which sold for an average $1,211. The PC maker recently discounted the portable to $1,099. Toshiba's Satellite 1555CDS, selling for an average of $1,070, took the second spot followed by the Presario 1277, which sold for an average of $1,468, according to PC Data.

According to PC Data, which does not track direct PC makers, six of the top-10 selling notebooks cost less than $1,500 and only two models averaged more than $1,800.