Multiple Milestones Ahead As Acer Buys Gateway

 |  Includes: GTW, LNVGY
by: Larry Dignan

Acer announced Monday that it is buying Gateway (GTW) for $710 million in a move that vaults the Taiwan-based PC vendor into the top 3 globally based on revenue. Acer reckons that Gateway will give it more than $15 billion in revenue and shipments, topping 20 million PC units a year (official statement).

But the actual nuts and bolts of the deal take a back seat to some of the moving parts in the industry. Here’s a look:

Acer becomes a bigger player. Acer was moving up the PC rankings anyway and the Gateway purchase just accelerates the move. What will be interesting to watch is how Acer manages multiple brands such as Acer, Gateway and eMachines. These days most of the PC manufacturing is farmed out anyway so it’s really a brand game. Can Acer hit a home run with any of these brands?

In a statement: Acer president Gianfranco Lanci said:

“Both Acer’s and Gateway’s geographical presences and product positioning are highly complementary. We believe that our combined scale will lead to significant efficiencies. Gateway has built one of the industry’s most powerful and unique brands and with this acquisition, we will have the opportunity to implement an effective multi-brand strategy and cover all the major market segments. In time, we intend to actively manage our brand portfolio and differentiate our brands to address different consumer segments.”

Acer says adding Gateway will enable the company to cut component costs and bolster manufacturing efficiency.

The end of the Gateway standalone era. Just about a decade or so ago, Gateway was a top PC vendor. You’d mention Dell (NASDAQ:DELL) or HP (NYSE:HPQ) and Gateway would be mentioned almost in the same breath. Then the dot-com crash came. Then direct sales became mundane. Then we got tired of cow spots. Then Gateway merged with eMachines and went through a few CEOs. Then we all forgot what Gateway really stood for. Apparently investors forgot too since Acer paid $1.90 a share for Gateway and that was a 57 percent premium. Gateway was wounded and this was the best exit for the company. Frankly, I’m shocked Gateway lasted this long as a standalone business. As for the cow spot debate–I err on the side of the cow spots are tired.

Lenovo (OTCPK:LNVGY) follies. As part of the Acer deal, Gateway declared that it would exercise a right to buy the parent of European PC maker Packard Bell. Why is that a big deal? It foils Lenovo’s encroachment in Europe. Lenovo was trying to buy Packard Bell.

But that’s just a small part of the Lenovo angle. By becoming the No. 3 PC vendor, doubling its U.S. exposure and thwarting Lenovo’s Europe plans, Acer has dealt China’s flagship computer manufacturer a big blow. And all of this drama comes as Lenovo has been struggling on the global stage. Remember Lenovo was going to be a big player once it bought IBM’s (NYSE:IBM) PC business. Instead, Lenovo has been so-so. Lenovo’s financials have improved and it still has some corporate heft, but the argument that it’s a huge brand outside of China is a stretch. Lenovo also faces a price war on its own turf from Dell.

Lenovo will be the fourth largest PC vendor behind Acer, according to IDC. A merged Acer and Gateway would have sold about 18.6 million PCs worldwide in 2006, or about 8 percent of global sales, compared to Dell’s 39.1 million units, HP’s 38.8 million and Lenovo’s 16.6 million.