Gateway To Cut 1,000 More Jobs

In a reminder that the rising tide of technology recovery is not lifting all boats, Gateway said it will slash another 1,000 jobs over the next few months as it tries to bring its costs back in line with revenues.

Gateway CFO Rod Sherwood said in a financial update that the company could have a total of just 5,500 employees within the next “few months.”

That figure would represent a reduction of 1,000 workers from today’s headcount, in addition to another 1,000 already cut since late 2003. Sherwood said some of the lost jobs will be outsourced to third-party vendors as back-end operations are shifted outside of the company.

The job-cut estimate does not include any possible layoffs connected to Gateway’s US$234 million purchase of eMachines. Sherwood said his company has not yet finalized plans for integrating the approximately 140 workers it picked up in that acquisition, which is expected to close by next week.

Break in the Auction

Analysts said the new job cuts at Gateway, while bad news for those pulling for the tech sector to lead off an overall economic revival, reflect a long-standing effort by the company to cut costs after it overextended itself by attempting to become a retail fixture in shopping malls across the United States.

Although Gateway has had some success in that arena and was something of a trendsetter by attacking the consumer-electronics market first with a line of high-end plasma television sets and other devices, its fortunes have diverged sharply from some of its competitors. Once its closest rival, Dell Computer has roared past Gateway to compete with Hewlett-Packard, while Gateway’s share of the PC market has fallen in the past three years.

On the Road Back

IDC analyst Roger Kay said Gateway still is picking up the pieces of its failed attempt to become a brick-and-mortar retailer. The costs of that move left it unable to join the PC price wars waged by direct-sales king Dell, HP and others.

“They’re working toward stripping back down to be able to go low on PCs and make their margins on the consumer electronics,” Kay told the E-Commerce Times. “But given where they were, they have a long way to go.”

Additionally, Gartner research vice president Martin Reynolds told the E-Commerce Times that Gateway’s remaining stores pose a hurdle to a better relationship with other brick-and-mortar retailers, who might be willing to stock more Gateway and eMachines products if Gateway were not a competitor.

Gateway recently reported a 25 percent year-over-year drop in PC sales, compared with gains for both HP and Dell.

Step by Step

In addition to shuttering scores of retail stores nationwide, Gateway last year shut an assembly plant in Virginia that employed nearly 500 workers and cut workers from its South Dakota retail operations.

The eMachines purchase has been seen as an instant boost to Gateway because eMachines has been consistently profitable and because it gives Gateway instant credibility in the low-cost PC business. Gateway has said the deal also will boost its cash flow and help it compete in other areas, including the consumer electronics niche, by giving it access to retail outlets that carry the eMachines brand on their shelves.

“Gateway is fighting uphill against Dell, which seems to have convinced the vast majority of the consumer population that they are the company that responds to their needs the fastest and the best,” Gartner’s Reynolds said. “If Gateway can learn from eMachines, it can be as streamlined as Dell in that one area at least. They clearly want to be much more lean than they are even now, after a lot of cuts and changes.”

Gateway has tried to shore up its business in other areas as well, most recently by launching a professional services division in an effort to gain a bigger slice of the enterprise computing pie. However, analysts have expressed skepticism about whether Gateway can expect to win an appreciable share of the large-enterprise market.