In its latest attempt to find profits in the notoriously low-margin personal computer business, Gateway Inc. is buying privately held computer maker eMachines Inc. in a deal valued at $235 million.
The combined company would still trail Dell Inc. and Hewlett-Packard Co., but executives hope the increased volume will give it more leverage in negotiating with suppliers. A similar argument was made when HP announced it was buying Compaq Computer Corp. in 2001.
“There’s an element of last man standing here,” said Roger Kay, an analyst at the research firm IDC. “The PC industry is definitely consolidating and, at this stage, bulk counts.”
Last year, Gateway’s overall PC shipments fell 24 percent to just under 2.1 million units. eMachines shipped 1.9 million PCs last year, meaning the transaction would effectively double Gateway’s overall PC business.
Once the deal is closed, which is expected to happen this month, Gateway founder and Chief Executive Officer Ted Waitt will be replaced by eMachines’ CEO, Wayne Inouye. Waitt, 41, will remain Gateway’s chairman. Inouye, 51, was senior vice president of computer merchandising at Best Buy Co. before joining eMachines in 2001 to turn around the then-struggling company.
The two companies, which began negotiating in December, have targeted different customers. eMachines employs only 138 people, mostly in Orange County, Calif., hiring outside firms and selling its lower-end PCs through major electronics retailers, including Best Buy, Circuit City Stores Inc., and Wal-Mart Stores Inc. Gateway, which employs about 7,500 people, sells its higher-end gear at its chain of 190 stores, over the internet, and by phone.
Gateway spokesman Ted Ladd said the company plans to ensure separation between the two business units in the near term and does not have any immediate plans to change the purchasing options now available to its education customers.
Looking ahead, Ladd said, an evaluation of eMachines’ supply-chain model likely will help Gateway explore new pricing options, which should result in lower costs for schools.