Acer Needs Gateway's Enterprise And Education Business - VARs

Acer said on Monday that it plans to acquire Gateway for $1.90 per share cash, or a total of about $710 million in a deal expected to close by December.

At the same time, Gateway said it plans to exercise its right of first refusal to acquire all the shares of PB Holding Company, the parent company for Packard Bell BV. Lenovo said earlier this month it was considering an acquisition of Packard Bell.

The acquisition of Gateway by Acer would make the combined company a major player in the U.S. desktop and portable PC markets in both the commercial and the consumer markets.

The acquisition would make Acer the number three player in both the desktop and portable markets in the U.S., according to IDC's second quarter 2007 report on the PC market.

The company would have a 2.9 percent share of the commercial desktop PC market, or the number four spot, and a 20 percent share of the consumer PC market, or the number two spot, in the U.S., IDC said. It would also control about 9.2 percent of the commercial portable PC market for the number four spot, and 21.6 percent of the consumer portable PC market for the number two spot in the U.S., IDC said.

However, the two companies have very little presence in the U.S. server market, IDC said. Gateway is in the Top 10 list of server vendors in the U.S., but only with a 0.2 percent market share, while Acer is not listed in the Top 10, the analyst firm said.

That consumer product focus, along with Gateway's disclosure on Monday of its plan to sell of its U.S.-based Professional business, which is where its channel business is done, to a third party, indicates that the impact of the acquisition, at least at the beginning, would be more on the retail channel than on the solution provider channel.

Gateway early this month reported that its Professional business had revenue of $173 million during the second quarter, which ended June 30. It sold 119,400 PCs during that period. However, revenue was down 31 percent, and PC sales volume was down 36 percent, compared to the same quarter last year.

Gateway did not comment on its proposed sales of its Professional business, or on any other facet of Tuesday's news.

However, John Spooner, senior analyst at the Computer Business Quarterly division of Technology Business Research, a Hampton, N.H.-based consulting firm, said the Professional business could be expected to go to smaller direct vendors such as Systemax, Port Washington, N.Y., or MPC Computers, Nampa, Idaho, which might be looking to expand their channel.

Solution providers said Acer has good channel relationships, but they are mixed on Gateway's channel friendliness.

Acer offers very good desktop and portable PCs which offer great value for the money, said Kevin Bruce, owner of Professional Computer Solutions, a Durango, Colo.-based partner of Acer, Lenovo, and Dell.

The only problem with Acer is that it does not offer an authorized services program for solution providers despite his company being authorized by Dell to service its products, Bruce said.

"When we signed on with Acer about three years ago, they said we would be an authorized services provider," he said. "We waited and waited. They finally said, 'We decided to not authorize you for service.' So we had to send customers' products to them. It's the only downside."

Gateway, on the other hand, left a sour taste in Bruce's mouth about three or four years ago when it became an unresponsive partner. "The Gateway rep was horrible," he said. "We'd call and ask for a quote, and she would never call back."

If Acer is looking to use the Gateway name to improve its U.S. business, Bruce said, it might do better to work with another vendor. "But if Acer acquires Gateway and is interested in improving their U.S. business, we'd be interested in talking to them about Gateway," he said.

Ted Hunter, owner of Champion Networks, a Brunswick, Maine-based solution provider, said Gateway has a direct sales force that has traditionally not been very friendly to the channel, but could change. "It has the same dynamics as Dell, but not as much money to do it," Hunter said.

The problem with Acer in the U.S. is that it does not have much of an enterprise business, Hunter said. "Not a lot of people know Acer," he said. "But Gateway has a name. The acquisition might make Acer more competitive, and make Gateway more channel-friendly."

For Acer to succeed in the U.S. market, it needs to grow its business into the enterprise, and it needs to add services, Hunter said.

"The people at Gateway weren't able to do that," he said. "Then Gateway went and acquired eMachines. Acer in the past acquired Altos, the hottest Unix server after IBM. But Acer just never went any place with it. No one knows Acer outside of small businesses."

Acer acquired Altos Computer Systems in September of 1990.

Hunter said that the drop in sales of Gateway's Professional business does not mean the company is not a channel-friendly one. "It just means that Gateway has not done a good job of marketing its professional services," he said. "They have a great back-end support for the channel, but is not marketing it."

Brian Lisse, owner of Madison Computer Works, a Madison, Wis.-based solution provider and Acer partner, said that Gateway lost all its credibility in Madison when it opened a local Gateway store and then retrenched.

"So we don't see them gaining any customer base here," Lisse said. "I don't see a negative impact from the acquisition, but I don't see a positive impact. I just don't see any advantage for Acer."

There is one place where Acer and its channel could benefit, Lisse said. "Acer never had a market in that space," he said. "But the acquisition may allow us to get into the education market. If there's a chance it lets me get back into the education market, you're holding a little hope to me."

The main impact of the acquisition will be on Lenovo, which is hoping to expand with its acquisition of Packard Bell, an acquisition that could be blocked if Gateway grabs Packard Bell first, Spooner said. But that blockage could be good for the channel.

"Where Lenovo needed its push is on the consumer side, which is why blocking of the Packard Bell acquisition will force Lenovo to look elsewhere, or turn back to a strategy of organic growth through the reseller channel."

The acquisition of Gateway and Lenovo means the end of the consolidation in the name brand PC business, because there are no more branded PC vendors to acquire, Spooner said. "The consolidation that began with Compaq buying Digital has now ended with Acer buying Gateway," he said.

The key to success in the merger will be how quickly Acer and Gateway can put together a team to approach the channel, Hunter said. "I believe both direct and indirect sales channels have their places," he said. "Maybe it's time to talk about Gateway's enterprise solution with Acer's backing."