Gateway, Inc. is a direct marketer of personal computers, related accessories, and information technology services. Their target market consists of individuals, families, small to medium sized businesses, government agencies, educational institutions, and large businesses in the U.S. They have “beyond-the-box” diversified products and services as well as financing programs, training, and support packages (www.hoovers.com).
Currently GTW stock sells for: $2.35 (closing price on March 25, 2003)
Recommendation: Buy (short-run)
Basis: Gateway, Inc. is indisputably in a lot of trouble. The personal computer industry is highly competitive in nature, and the depressed margins seem to be too much for Gateway to bear. My recommendation to buy the stock comes strictly from their cash per share value and expectations of the personal computer market. I believe that the PC market will begin to pick up steam near the end of this year, as many analysts expect. When this occurs, we should see some gains in GTW stock. I feel that the stock should rebound to around $1 above the cash per share value. Of course if they don’t get their costs under control, the margin based on cash per share, would begin to rapidly evaporate. The Company
Previously, Gateway organized its business operations into four operating divisions: the consumer segment in the U.S.; the business segment in the U.S.; Europe, the Middle East and Africa (EMEA), and Asia Pacific, including Australia. As of September 30, 2001, Gateway reorganized its domestic consumer and business operations into one unit and closed its EMEA and Asia Pacific operations (www.hoovers.com).
As of January 31, 2002, Gateway was operating 277 retail stores in the U.S. and offers over the telephone ordering 18 hours a day, seven days a week. They have sold over 25 million PCs to date and maintain a database of these customers. They offer a broad line of Company-branded PCs and servers. Their PCs come in recommended configurations but it is also possible to custom tailor a computer. The Gateway servers offer an adaptable design that can be custom built with a multitude of options to fit individual needs (www.hoovers.com).
Most companies have been humbled by the bear market that happening in our economy, but few have suffered as much as Gateway, Inc. Currently, the company is trading at two-thirds of the value of it’s $1.07 billion in cash on it’s books. This means that investors believe Gateway’s operations are actually worth negative $379 million (McWilliams, Brown, C1).
Gateway has posted losses in 8 of the last nine quarters and are about to undertake their third restructuring program since 2000. The prior two have disappointed investors failing to bring the company back into the black. Their restructuring will mean more lay-offs and shorter workweeks. Currently manufacturing employees have already been cut back to 32 hours per week. Founder and CEO Ted Waitt has a vision of a “smaller, faster, nimbler, more customer-focused company…We’re not going to be the biggest technology company; we’re just going to be the best (McWilliams, Brown, C1).”
Bargain hunters don’t have such ambitious goals for the company but feel they will be able to turn around eventually. Nicholas Gerber, fund manager for Ameristock Focused Value mutual fund, has invested 10% of the fund in Gateway stock. “They’re loosing money, but at this rate they could be loosing money for the next 10 years” Nicholas said. He believes that “In essence, we’re getting the company for free.” Other value investor also believe the stock is worth more it’s cash value of $3.29 per share (McWilliams, Brown, C2).
The problem with Gateways long-term prospects is that they will always be living in the shadow of Dell and other large players. According to Mr. Kaufler, whose Pittsford, N.Y. firm oversees $1.6 billion in assets, they will not be able...
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