PC and electronics maker Gateway (ticker: GTW) reported 3Q05 earnings of $15.1 million on $1.02 billion in revenue and has seen its beaten-down stock rise about 9% since. In the conference call, Gateway CEO Wayne Inouye commented on how Gateway plans to challenge the big retailers:
if you look at the marketplace today, you’ll see that there’s been a fairly significant shift in the way that brands are now attacking or going after business in the direct market… It’s impossible to compete with retailers in the direct space in the popular price segments… if you want to make any money at all, you really have to sell things to consumers that retailers do not provide… higher end products, more feature-rich and with a focus on higher price notebooks… The area you can make money in the direct space, I believe, is small business… I believe that is still a market to target.
And on Gateway's plans to move some production away from Mexico -- it's all about quality control, a matter that's absolutely central to success in this sector now:
We have had difficulties managing the quality of the product coming out of Mexico. And we believe that there’s zero tolerance for product quality issues in the professional sector. So we have taken essentially a zero tolerance policy on quality… If you look at the component of labor of any products that we sell now, it’s a relatively small part of the product. And we believe that the quality issues offsetting service costs will far outweigh a location in the United States.
(Quotes are from the CCBN StreetEvents transcript.)
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