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Gateway buys credibility with ALR

The company's merger with server vendor Advanced Logic Research may finally persuade corporate customers to take Gateway seriously.

PC maker Gateway 2000 (GTW) is about to overnight become the twelfth-largest server vendor in the world.

That is, if its $194 million merger with PC and server manufacturer Advanced Logic Research (AALR) goes through.

Gateway to buy Advanced Logic
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Under the plan, Advanced Logic will become a wholly owned Gateway subsidiary and retain its brand name. Gateway will, however, use Advanced Logic's server technology in its Enterprise line, marking the latest in a series of attempts to become a serious player in the corporate market.

Gateway recently the introduced "E" series of business systems designed exclusively for large corporations, a first for a company that specializes in mail-order sales of PCs.

But the merger with ALR buys the company a credibility it hasn't achieved on its own yet. "With one decisive move, Gateway has nullified its numerous futile attempts to establish a server beachead," said Ashok Kumar, a financial analyst with Southcoast Capitol.

Although ALR is also a desktop PC vendor, its principal strength is servers. The merger will let Gateway be considered more seriously by corporations who want to buy both desktop PCs and servers from the same vendor. With ALR, Gateway now becomes a "one-stop shop for corporate customers," Kumar said.

The Gateway-ALR deal follows fast on the heels of a similar merger announcement between Micron, another large direct marketer of PCs, and Netframe, a high-end server manufacturer.

For companies like Gateway and Micron who are entering late into the PC server fray, analysts say it's almost impossible to play catch-up without acquiring a company with the right technology. "There's no time anymore to develop technology in-house. The market is moving too quickly," says Greg Garry, an analyst with market research firm Dataquest.

Garry approves Gateway's choice of ALR.

"The aquisition does get them a place at the table and gains them some rather strong technology," Garry said. "ALR has a very solid [multiprocessor] servers that have been picked up by Data General. They are growing fairly solidly," he says. In addition to its own server line, ALR currently manufacturers servers for Data General and Unisys.

ALR also sells its products through VARs, or value-added resellers.

The two companies are planning to mix and match their products to serve both the direct and VAR sales channels. "Our goal is to build customer choice. A lot of companies like doing business with a VAR. We bring build-to-order systems to ALR," said Jim Taylor, vice president of global marketing for Gateway. "ALR will make decisions about what Gateway desktop and mobile platforms make sense for their customers, and we'll make a similar decision about the server products."

ALR will sell Gateway products under its own brand name while Gateway says it expects to start selling servers directly to customers by the fourth quarter.

ALR shipped more than 21,000 servers last year, Kumar said. ALR had profits of $3.2 million for its second quarter of fiscal 1997 on net income of $55.4 million, more than 50 percent of which came from server sales. The company has $58 million in the bank.