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Analysis: Acer-Gateway means 'end of Acer PCs'

What does Acer's purchase of Gateway mean?

Industry experts suggest that the initial impact on consumers of the sale of Gateway to Taiwan PC giant Acer will be small. But one of the biggest issues raised by the acquisition is how Acer will now present its three product brands to consumers (the Gateway purchase includes the eMachines budget PC line), especially considering that some of those brands already duplicate each other.

Acer acquires Gateway for $710m

The deal to purchase Gateway propels Acer into the spot of third-largest PC maker in the world. In a further complication, Gateway announced it will exercise its option to buy out European PC maker Packard Bell - a move that stymies Chinese PC-maker Lenovo's growth-by-acquisition plans. Lenovo is the maker of the popular ThinkPad line of laptops.

How the brands will be segmented in the future will likely depend upon a number of factors. As of now, says IDC research analyst Doug Bell, "they're going to keep all three brands separately in the marketplace - Gateway, eMachines, and Acer".

Name that PC

In a news conference, Gianfranco Lanci, president of Acer, indicated that the company plans to keep, and perhaps even expand, the Gateway brand going forward.

"But I think what we'll see is going to depend upon the region; Acer will see which brands work best where," Bell says. For example, Acer currently is stronger in Asia and Europe than it is in the US.

Combining the product lines produced by the new Acer-Gateway entity, though, will present a challenge on two very different fronts - desktops and notebooks. While the industry has had precedent for a single company maintaining two distinct brands in the marketplace, doing so has proven to be a delicate balancing act.

For example, Gateway has successfully maintained the eMachines brand at retail 3.5 years after it acquired eMachines. However, Gateway has done so by allowing eMachines to continue playing to its established niche, that of a low-cost retail brand.

Five years after HP bought Compaq, the company continues to keep the Compaq Presario brand alive. Although HP similarly tries to create distinctions between its HP Pavilion-branded products and its Compaq Presario-branded products, both lines are available at HP.com as well as in tech retail stores. (HP says its Pavilion line is more high-end, while its Compaq line is more no-frills and budget friendly.)

Sometimes, though, the distinctions among the brands can get a bit messy. "Even HP has had lots of challenges managing two brands," says NPD Group vice president of industry analysis Stephen Baker. Baker notes that HP had to learn how to handle positioning and pricing, to find a way to explain what makes a Presario different than a Pavilion, and why.

Which Acer brand will prevail will depend on which market you're talking about - and how successful the brand may already be there. For example, says Baker, "I don't think it's viable to manage three brands like that. It would be costly to do so. And there's probably too much overlap between Acer and eMachines."

The likely result on the desktop side of the equation is that you'll see Acer desktops disappear from retail stores.

The notebook side of the equation presents a different story. There, says Baker, "it's easy to see an Acer-Gateway going up against HP-Compaq. With notebooks, I think the branding is more solid, even though Gateway has struggled a lot lately. Gateway hasn't picked up any market share, while companies like Toshiba have grown market share because they've been aggressive on pricing."

Increased competition for space on store shelves could provide an unexpected test for Acer.

"Right now, Dell would like to pick up shelf space," says Baker of Dell's push to gain retail presence. "So it comes down to: how will Acer manage the differential among their brands [to remain appealing to retailers], when there's another company looking to get their brand into the stores?"

Beyond store shelves: impact on sales, consumers

With regard to direct sales via manufacturer websites, NPD's Baker doesn't see this merger as having much impact. As a direct business, Gateway has been fairly small, and Acer has had virtually no direct business.

"Acer has said they're committed to selling through retail and VARs [value-added resellers], and not being hybrid direct sales and retail sales, as HP and Toshiba are."

Although Acer gains Gateway's direct sales business, that business has not been as successful as one might think. In the second quarter of 2007, Gateway's own financial report says it sold 1.1 million units - 938,000 at retail, 119,000 in its professional division, and a mere 30,000 PCs direct.

That direct sales number is down 35 percent from the first quarter of 2007, and down 15 percent from the prior year. Now, 30,000 in direct sales is an immediate improvement over the Acer's current nonexistent online direct sales presence, but it isn't as if the Gateway deal catapults Acer to the head of the field.

Beyond the brand jockeying, the impact on consumers should be minor. "PC pricing is not likely to be affected, as brand competition tends not to impact pricing as much as configuration trends and supply costs," says Baker.

"Everybody thought that would happen when HP bought Compaq. But we haven't seen anything that would make prices go up from a vendor competition standpoint."


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