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Gateway Execs Answer To Wall Street

3/12/2007 02:00:00 AM Eastern

Gateway CEO Ed Coleman told an audience of Wall Street analysts that he is happy with the company's product mix, but said the computer maker must get its financial house in order to increase shareholder value and take the company to the next level.

Coleman, and company CFO John Goldsberry, were questioned at a recent Goldman Sachs Investment Symposium. Coleman touted Gateway's retail relationships as its primary strength, but he noted two short-term goals he hopes to achieve.

"We want to make Gateway a more predictably performing, consistently profitable company," Coleman said, adding the other yardstick he will use to measure success is increased consumer market share.

The company now has about a 14 percent share of the market according to the research firms IDC and Gartner, but Coleman sees a chance to boost share, particularly in the notebook category.

Coleman said this growth will take place organically and there are no plans to acquire another company.

"Our focus is making Gateway a successful as it is," he said, although there was no comment regarding calls from investors to divest parts of the company.

Coleman and Goldsberry also said they have, at least temporarily, sheathed their scalpels and put off any further cuts. The company has undergone several rounds of layoffs over the past year.

"There are efficiency opportunities, but I think most of the work has been done," Coleman said.

Keeping its shareholder's happy has become a priority for Gateway since late last summer when two separate shareholder groups attempted to impose their will upon the company. Late last summer an investor tried, and failed, to buy out the company. This was followed by a more successful move by Firebrand Partners to gain access to Gateway's board of directors as a method of improving shareholder value. Firebrand Partners owns about 10 percent of Gateway's stock. Scott Galloway, CEO of Firebrand Partners, was recently added to Gateway's board. He was joined on the board by Dave Russell, a former Gateway executive, last week.

Coleman welcomed Galloway saying his expertise in brand marketing is a plus.

While Gateway needs to increase market share, the company will not tinker with its current formula that has 70 percent of its business going through retail and 5 percent direct. The remaining revenue comes from its commercial and enterprise business.

Goldsberry said the company's direct business is still a necessary option to offer consumers, but its role has been scaled back and redirected over the past few years. About 200,000 of the 4.1 million PCs Gateway shipped were sold online.

"We've moved away from thinking of the direct business as a separate business. It's now part of our overall consumer strategy," Goldsberry said.

Gateway now uses its direct sales arm as a showcase for its cutting edge and high-end PCs, Goldsberry said. This helps build brand buzz and reduce overlap with the stock carried by the company's retailers.

Looking back at the holiday selling season Coleman said that sales were negative, but he was not certain if this was due to consumers holding off purchases until Microsoft launched Vista in January. Whatever the reason, the impact was powerful on Gateway as retailers smartly scaled back their inventory levels in anticipation of the sales shortfall, Coleman said.

This left Gateway with about two weeks of extra inventory and the company has just recovered from this event.

Overall, the company was pleased with Vista's impact, but it was noted this up tick was mainly due to early adopters grabbing new PCs.

"The initial [consumer] response was positive, but the long-term impact remains to be seen. There are a lot of reasons it should spur PC sales," Goldsberry said, adding that it will be interesting to see how the first quarter plays out since the first month was completed in the run up to Vista's launch.

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