SWOT Analysis on Gateway Computer Company - Case Study Example

Gateway Computers Organization’s History Gateway Computers, now part of Acer, is an American computer hardware maker and distributor, with headquarters at Irvine, California. It designs, manufactures, distributes and supports a wide range of personal computers as well as computer related peripherals like computer monitors and servers. The ‘seeding’ for Gateway Computers was laid in the year 1985, when college dropout, Ted Waite with a $10,000 loan provided by his grandmother and a rented computer started Gateway. From those humble beginnings, Gateway turned out to be a trendsetting, well known company in 1990’s. It was in 1993 that it became part of the Fortune 500 companies’ list and also went public by first trading on the NASDAQ, and then moving on to the New York Stock Exchange in 1997. From early days, Gateway was always known for its pioneering skills because it was the first PC company to offer systems with color monitors as standard, the first to offer a standard three-year warranty and was the first direct retailer to sell its own branded consumer electronics with the launch of the highly successful Gateway® plasma TV. (gateway.com). As a major strategic decision, it acquired eMachines, which was considered to be one of the worlds fastest-growing PC makers, in 2004. However, from early 2000’s, it did not had a smooth run and in 2007 it ceased to exist as an independent company, as it was acquired by Taiwan based PC maker Acer. Strengths The first main strength of Gateway was and still is its brand image. It has a long-held association with the American people through truly ‘Americanized’ promotions. That is, Gateway shipped its computer hardware in black and white cow-spotted boxes and carried out creative brand building exercises through Computer Shopper and other magazines, thereby optimally elevating its image among the Americans. "Who doesnt like the spotted dots, the cows, what they stood for, seeing (founder) Ted Waitt in the commercials with the pickup trucks?" Bhavnani asked. "Its a company that people rooted for." (cited in Ogg, 2007). This strength is a distinctive competency for Gateway because it is this brand image which enticed Acer (and HP previously) to acquire Gateway, as that image can be ‘transferred’ to Acer as well. Gateway’s other key strength is its acquisition by Acer, making the combined entity the world’s third largest PC maker. Acer already has a strong market in Asia and Europe and with this acquisition; Gateway Computer products can reach those regions as well as enabling Acer to have a strong presence in America. Also, as a single company both the companies have access to a good portfolio of intellectual property and are implementing multi-brand strategy, covering major market segments, thereby adding competency to the enterprise. The other strength of Gateway which is also transferable to Acer is its acquisition of PB holdings, the parent company of European PC vendor Packard Bell. That is, before Gateway acquired PB, Acer’s main competitor Lenovo competed to acquire PB, but could not succeed. So, Gateways planned acquisition of PB has been regarded as a competency and some kind of coup for Acer, because it was able to get what its main competitor Lenovo failed to get, through Gateway. Weaknesses Currently, Gateway has some weaknesses ever after its successful acquisition by Acer. Actually, the first weakness is, Gateway was acquired by Acer for a price, which is far below the price it ‘demanded’ in 1990’s, thus making it a minor partner with Acer. That is, Acer acquired Gateway for approximately US$710 million, offering a final share price of US$1.90, which was far below the US$4.00 average price in the mid 1990s and drastically below a high of US$84 in late 1999. Such a high price in 1999 only made the PC maker Compaq (which is now part of HP) to issue a unsuccessful offer of taking over Gateway for a formidable $7 billion in 1997 itself, far above than the $710 million offered by Acer. This weakness of being a junior subsidiary can be corrected somewhat, if Gateway is able to improve its share of profits sizably, from its operations in near future. The second weakness is a continuation of the first weakness. That is, critics view that Acer’s acquisition of Gateway, could save Gateway, but will not anything ‘profitable’ for both Gateway as well as Acer. According to Gold, “this acquisition rescues Gateway from a slow fade to black while not giving Acer much of a sorely needed advantage in the North American market.” (cited in Savitz, 2007). This weakness can be corrected mainly by Gateway by optimizing its operations, reach and thereby bringing in considerable profits, and in the process benefiting the merged entity and thus removing this supposed prediction. The final weakness of Gateway is a continuation of its earlier mistakes. That is, in 2007, Gateway sold its professional business segment to MPC Corporation, thereby transferring then existing customer base to MPC. However, MPC became bankrupt and ceased to exist in 2009, leaving all the Gateway’s earlier business customers in the lurch, without any warranty services and any technical support to do the repairs and for downloads. This incident has caused substantial damage to the Gateway brand, a company that formerly boasted high marks in customer support reviews, and this weakness can be corrected only by providing some kind of support for the stranded customers in association with Acer. (Skubick, 2010) Opportunities When viewed from the political dimension within the general environment, it is clear that Gateway has good opportunities to tap. The issue of outsourcing work to foreign countries has been raising a lot of storm in the American political as well as business circles, and Gateway’s actions in this aspect provides good opportunities for it. That is, Gateway hired more than 100 technical support workers in North Sioux City, S.D. as part of its customer service. With steps like this, Gateway Computers has resourced all its customer support back into North America, even priding itself as a company which has complete North America-based support team. These initiatives will get Gateway into the good books of the American public as well as the government and could result in better customer response. The second opportunity for Gateway is visible in its economic environment. That is, Gateway recently has shifted to a 100% indirect sales model, shutting down its own retail and exclusive stores, and instead offering through other retail stores and websites. “By offering our acclaimed notebook, desktop and display lines exclusively through retail partner stores and websites, were able to more effectively develop and deliver the products you want in an efficient, customer-focused way.” (gateway.com, 2008). This opportunity could positively impact Gateway because its pursuit of opening own retail stores in early 2000 only started its downslide, so it is better to follow this opportunity filled sales model. Again, its merger with Acer brings in various opportunities particularly in the economic environment. That is, by joining with Acer, Gateway can add even more value to its consumers because of Acers highly considered supply chain operations. That is, Acer’s optimal supply chain could provide Gateway, good options to reach its products to the customer in various territories quickly and with quality. Threats Even after its prospects filled merger with Acer, Gateway still has threats in its business and socio-cultural environments because of its past record. That is, although Gateway tried various strategic options to get out of the troubles it faced from the starting of 2000’s, it failed to achieve any worthwhile success. This failure has devalued Gateway’s brand image among people and so there are skepticisms or threat, whether it can succeed in its new endeavor of merging with Acer. “Despite several reincarnations over the past five years, Gateway has failed to differentiate its brand or fully execute operationally, resulting in an erratic profitability record” (Kitagawa, Smulders and Bova, 2007). This threat will negatively impact Gateway because its customers will be doubtful whether to associate with a company which continue to fail even after several attempts Again in the economic environment of Gateway, there will be threats. Acer’s acquisition of Gateway and thereby the scenario of it becoming one merged entity has resulted in few players for the retailers to choose from. Although this could be seen has an opportunity, it is actually a threat in disguise, because with few players or vendors to choose from, the retailers could take time to analyze all the pluses and minuses of each company before deciding on which one to choose. “Retailers will have fewer vendors to choose from, so this creates opportunities for Lenovo, Asus and even Dell to compete in this market.” (Kitagawa, Smulders and Bova, 2007). With more direct competition, it would be difficult for Gateway to entice the customer base and flourish well. Another threat that could happen in its economic environment is the doubt whether Acer would be able to do a ‘magic turn’ for Gateway. With Acer taking over an already struggling Gateway, there are a lot of expectations from Acer to optimize Gateway’s operations and show positive results. This expectation could turn out to be a threat for Acer, if Acer fails to show success with Gateway, even pulling Acer down the dumps. If the ‘resuscitation’ job of Acer fails, Acer’s profits and image could suffer, leading to problems for Acer as well, in addition to Gateway. Strategies The business-level strategy that Gateway followed and appears to be following even now including in its acquisition by Acer is the reactor strategy. According to Griffin (2006, p. 209), business that follows a reactor strategy will have not consistent strategic approach and drifts with environment events, reacting to but failing to anticipate or influence those events. This is clearly relevant to Gateway because it decided to sell its Computer products through its own retail stores, without finding good locations. Then when this venture did not pick, it suddenly indulged in the corporate-level strategy of related diversification by selling its own branded consumer electronics like Plasma TVs. Although, it succeeded and gave benefits, Gateway suddenly shut down this business to focus on its core products of PC manufacturing and sales. However, it again decided to closed down all its retail stores and sell its products only through external retail stores. And as the extreme part of reactor strategy (when all its previous reactor strategies failed), it allowed it to be acquired by Acer for less than expected sum. However, when viewed positively, this acquisition by Acer could do a world of good for both Gateway as well as Acer. That is, as Gateway can use Acer’s effective supply chain, it can come up with good quality products and can reach the customers effectively. Also, Gateway’s recently acquired positive image of being an All-American company could neutralize the negative image or threat of being a repeated failure. With good marketing and brand image, it can neutralize the threat of competition and continue selling high volumes through other retail stories, thereby gaining good profits for the merged entity, cementing their relationship and importantly making the acquisition a great success. References gateway.com. Company Background. Retrieved March 14, 2010 from http://www.gateway.com/about/news_info/company_background.php gateway.com. (2008). Why did we change? Retrieved March 14, 2010 from http://www.gateway.com/about/news_info/direct.php Griffin, RW. (2006). Management. Cengage Learning Kitagawa, M., Smulders, C and Bova, T. (2007). Acer to Acquire Gateway, Strengthening Its Global Position. Retrieved March 14, 2010 from http://www.gartner.com/resources/151400/151463/acer_to_acquire_gateway_stre_151463.pdf. Skubick, T. (2010). Candidate for governor has some good ideas but how can the state afford them? Retrieved March 14, 2010 from http://www.macombdaily.com/articles/2010/02/26/opinion/srv0000007690938. txt Ogg, E. (2007). Gateway: From PC powerhouse to buyout bargain. Retrieved March 14, 2010 from http://news.cnet.com/Gateway-From-PC-powerhouse-to-buyout-bargain/2100-1042_3-6204782.html Savitz, E. (2007).Gateway To Be Acquired By Acer; But First Gateway Buys Packard Bell, Foiling Lenovo. Retrieved March 14, 2010 from http://blogs.barrons.com/techtraderdaily/2007/08/27/gateway-to-be-acquired-by-acer-but-first-gateway-buys-packard-bell-foiling-lenovo/ Read More