Acer, Gateway, Lenovo and Packard Bell

August 27th, 2007

By John Jacobs, Director of Notebook Market Research

So, it looks like the rumors that have been bandied about the PC industry for well over a year are finally true. Acer will acquire gateway for US$710 million. So, what does this acquisition do for Gateway and what does it do for Acer?

Let’s start with a little history. According to NPD Group/Retail Tracking Service Data, Gateway’s and eMachines’ combined share of the retail market for notebook PCs was just 2% in 2004, increasing to 4% in 2005, up to 6% in 2006. Similarly, Acer’s share of the retail market has been steadily growing. From less than 1% of the US retail notebook market in 2004, Acer’s rose to 4% by the end of 2006.

And now for Gateway: It is no secret that the company has struggled for several years now. In late 1999 at the height of the high tech boom, the company’s stock peaked at just over $80 a share. Since that time it fell precipitously, dropping as low as $1.13, and never getting higher than $7 a share over the past five years. However, Gateway has managed to hold onto a fairly respectable position in the US retail market. The company’s share currently stands at 7% for notebook PCs and 8% for desktop PCs.

So, what does Acer get out of this? On a worldwide basis, data that will soon be released in the DisplaySearch Quarterly Notebook PC Shipment and Forecast Report indicates that the two companies will combine for 14.3% share of the notebook market. But perhaps more importantly, Acer gets a bigger foothold in the US retail market. Although Acer holds a considerable 13.5% share of the total North American notebook PC market, it is no secret that the company has been much more successful selling their products through distribution and B2B channels and has struggled trying to penetrate the retail market. Gateway’s former CEO Wayne Inouye has a strong relationship with the CEO of Best Buy, and after the closure of the Gateway Country stores, this relationship likely helped to keep Gateway products on store shelves.

Lenovo is also affected by this deal, and the acquisition officially ends their attempt to acquire Packard Bell. The founder of eMachines, John (Lap Shun) Hui, who sold the company to Gateway in 2004, acquired Packard Bell’s PC unit from NEC in October 2006. Hui and Gateway signed an agreement giving Gateway the right of first refusal if Hui decides to sell PB Holding Co. SARL, the parent company of Packard Bell. This means that if Hui wants to sell Packard Bell, he has to ask Gateway first, and Gateway can stop the deal if it wants to enter into purchase talks with Packard Bell. Apparently, this is precisely what Gateway has done.

Assuming the Packard Bell acquisition is successful, Acer’s notebook PC share in Europe would slightly exceed 20%, once again pushing them to the top spot in the EMEA market, with Lenovo holding ~5% share.

The lingering questions are:

  • Does the Gateway-Best Buy relationship survive the acquisition? Will Best Buy be open to other brands (especially Dell) that are seeking deeper penetration of the rapidly growing consumer notebook market? Does this open the door for more Acer products in Best Buy and Best Buy for Business locations?
  • Acer will own four brands: Acer, eMachines, Gateway, and Packard Bell. What do they do with each of these brands? Does Acer follow the HP approach, reserving the Gateway and eMachines brands for consumer-oriented products (like Compaq) and using the Acer brand for enterprise customers?
  • What does the future hold for the nearly 1,700 Gateway employees? Acer is well known for running fast and lean.
  • How will Lenovo grow its share in EMEA? Now that its Packard Bell deal has been halted, are there other potential European PC companies they can acquire to grow share in that region?

  1. 3 Responses to “Acer, Gateway, Lenovo and Packard Bell”

  2. By Dave M on Sep 4, 2007 | Reply

    I’m confused as to how Acer/Gateway can be successful against HP & Dell without an enterprise product line (servers/storage/assoc’d professional services). Enterprise solutions have very high margins that help “fund” the deep discounting required to compete in the desktops/laptops markets. Gateway’s Professional division, which includes nice server & storage solutions is up for sale, as Acer said they are not interested in keeping it. Anyone have any thoughts to this point?

  3. By Syed Arshad on Sep 12, 2007 | Reply

    Dear Dave,
    Acer’s explosive growth over the last 4 years has confounded a lot of people who have viewed the PC industry from the traditional perspective. Acer, other than Apple was one of the first companies to view the the PC industry as a commodity business (like TV, white goods etc.). The success mantra lay in delivering standardised boxes to the retail counters at the lowest cost.

    HP has been been quick to catch onto this startegy and it is clearly reflected in their numbers over the last 2 years (post Fiorina). Dell has been slow to adapt to this, and is also reflected in their dwindling marketshare growth (-ve over the last 6 qtrs).

  4. By John Jacobs on Sep 12, 2007 | Reply

    Dave and Syed,
    First, I’d like to thank both of you for taking the time to read and comment on my blog.

    Second, I’ll offer my perspectives on your questions and comments.

    Regarding Acer and the notebok market, they achieved substantial penetration in Europe by working through distribution channels and going after enterprise customers (of all sizes). They tried to apply the same strategy to the US, but have had limited success. In the past few years, the consumer market has started to boom, especially after ASPs for notebooks dropped below $1,000. Acer had a very limited retail presence, whereas Gateway, a much smaller WW brand, had a farly sizable footprint in that space. Buying Gateway, and by extension getting Packard Bell, jump starts their penetration in retail and further pushes their growth in Europe.

    As for HP and Dell’s respective positions, a lot of this again has to do with retail (consumer) versus enterprise customers. Dell has publicly stated that their split is roughly 85/15. That is, only 15% of their business is with consumers, and their brick and mortar retail presence, up until very recently, was limited to selling some products through some Costco stores. With consumers increasingly choosing notebooks over desktops. Combine that with Dell’s limited retail footprint and you can see some of the reasons for their struggles. They simply do not have their products in front of the eyes of consumers.

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