Gateway trying to earn new spots

If you’re looking for an alternative to Dell and HP that promises lots of handholding, a resurgent Gateway may be worth a look. Who would have thought?

Since taking over the reins as CEO of Gateway last March, CEO Wayne Inouye has been determined to get the third-largest PC maker in the U.S. back to sustained profitability.

The company lost $526 million last year on revenue of $3.4 billion. But sales have been edging up and, excepting almost $400 million in restructuring charges in the last two quarters, losses are narrowing. Charges aside, the company lost $49 million in the most recent period, the smallest loss in 10 quarters.

Bruce Smith, senior vice president of the company segment that serves professionals, says part of the profitability strategy is to drive down selling, general and administrative expenses. “Last year our SG&A was 24% to 25%. We’re down to under 12% now, and we’ll be 9% and change by the end of year,” he says. By comparison, Smith says Dell’s SG&A is about 8.5%, and HP’s is 12% to 13%. “We think we can beat Dell by half a point or a point.”

How? By reducing head count to start. When Gateway acquired eMachines in March, the merged company had 7,500 employees. Today, after closing the Gateway retail stores and jobbing out manufacturing, the company employs 1,800.

The company also is busy consolidating suppliers. For example, where it once had seven hard-drive vendors, it now has four. “We’re going through the entire business looking for places where we can cut back and simplify,” Smith says.

And Gateway is learning from the company it acquired. EMachines has long put the model and serial numbers on the front of its machines, which speeds support calls. “Warranty costs at Gateway today run 4% to 6%,” Smith says. “At eMachines they’re 2% to 3%. The goal is to drive the entire company down to that level.”

Smith’s segment of the company sells $1.2 billion of Gateway products – now the premium brand – into government, education and midsize enterprise markets. “We have a product set for professionals we didn’t have a year ago – a full server and storage line and customized desktops and notebooks,” he says.

Gateway tries to differentiate itself with what it calls a customer intimate model. “We try to smother customers with support and care,” Smith says. “Inside and outside sales, someone responsible for customer care, a quality assurance person and a loop into product planning.”

So if you’re looking for an alternative to Dell and HP that promises lots of handholding, a resurgent Gateway may be worth a look. Who would have thought?