Gateway Grabs Piece of CMGI

Computer manufacturer Gateway (Nasdaq: GTW) announced Thursday that it has formed a major strategic agreement with top Internet incubator CMGI (Nasdaq: CMGI) that will result in new investment and e-commerce opportunities. Gateway has also agreed to invest $200 million (US$) for an ownership stake in CMGI.

The companies will now collaborate to find Internet-related investment opportunities. Gateway will also integrate its products and services within CMGI’s network of Internet companies. CMGI has equity stakes in companies including Lycos and online retailers that sell everything from health products to automobile parts.

A Common Vision

CMGI and Gateway will treat each other as preferred vendors and explore business opportunities with the companies that have CMGI as a majority shareholder. These companies include Activerse, Adsmart, Engage Technologies, ICast, Planet Direct, NaviNet, NaviSite, Magnitude Network and ZineZone.

“Gateway and CMGI share a common vision of the future of the Internet,” said Ted Waitt, chairman and CEO of Gateway. ” It’s about providing strong content, building relationships and a sense of community with our clients and using the Internet as a powerful vehicle for marketing products and services. We intend to collaborate on a range of opportunities, including site development and interactive marketing solutions.

Gateway Focuses on Internet

Gateway ranked No. 1 in U.S. consumer desktop PC sales in the fourth quarter of 1998, according to statistics from the Gartner Group/Dataquest US PC. The company also impressed Wall Street with total global revenue of $7.5 billion in 1998 and by shipping 3.54 million systems. However, Gateway’s alliance with CMGI is the latest sign that Gateway knows it has to become much more than a PC company.

Like industry leader IBM, Gateway has realized the Internet is the future of its business. In fact, Gateway now likes to refer to itself as a “leading provider of complete technology personalization.” Gateway has underscored the importance of its new business plan by relaunching its Web site, launching an Internet access service and opening the SpotShop.com superstore for computer products.

Stock Impact

On an overall down day for the Nasdaq, shares of Gateway fell 9/16 to 67-5/8, while CMGI stock dropped 1-11/16 to 238-1/16. However, Gateway investors have to be happy about the deal. Gateway stock is currently trading at a price/earnings ratio of about 29. If the company continues to establish itself as a bigger Internet player, that P/E could rise dramatically.