Clearly, Gateway is going to have to improve the way it markets to businesses. The margins for selling at retail are brutal, and that is not likely to change.
But the most important issue at Gateway is still expenses. In 2005, the company was a breakeven operation on almost $3.9 billion in revenue. PC unit sales were up 27% over 2004, so the lack of a profit is especially troubling. The company had a gross profit of $339 million for 2005. That's all it has to work with against its costs. And, the PC market is not likely to grow like a weed over the next couple of years. Of course, Gateway has plenty of competition in bigger companies with better balance sheets like Dell (DELL) and HP (HPQ).
Taking another 10% out of the cost base, combined with even modest growth, turns Gateway into a reasonably good investment prospect, which it is not today. This is going to be especially hard given the huge amount of expense reduction that has already been done. But it's necessary if this stock is going to see $6 or $7 again.
Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He has also been president of Switchboard.com when it was the 10th most visited site on the internet, according to MediaMetrix, and chief executive of On2 Technologies, Inc. and FutureSource LLC.