Gateway

History

1985–1990: Foundation

Gateway was founded as the TIPC Network by Ted Waitt and Mike Hammond in September 1985. Ted Waitt was the company's principal founder; he was later joined by his older brother Norman Waitt, Jr. Before founding the company, Ted Waitt lived on his family's cattle farm in Sioux City, Iowa. He had dropped out of two different colleges to work on the farm before landing a job at a computer store in Des Moines, Iowa. After nine months of experience gained on the job, Ted had the idea to start his own computer reselling company that would allow him to sell to niche customers who needed systems in between the lower- and upper-ends of the personal computer market, whose systems were either too limited in terms of speed and memory or too expensive with seldom-used higher-end features. Ted also found that educated salespeople could successfully sell computers to customers completely over the telephone, impressing on him the idea that he could eliminate overhead by having a robust remote salesforce and impressive catalog.

Strapped for cash, however, Ted Waitt took out a $10,000 loan from his grandmother Mildred Smith and occupied the empty upper floor of his father's dilapidated cattle brokerage. He was joined by Mike Hammond, Ted's coworker who trained the latter to become a computer salesman at their previous job. The duo's first products were software and peripherals for Texas Instruments' Professional Computer home computer, advertised in various computer magazines. The TIPC had been discontinued in the previous year and was largely considered obsolete by 1985. TIPC Network charged their first customers with a membership fee of US$20, in order to flush the company with more start-up capital.

Owing to their products' very low costs, TIPC earned up to $100,000 in sales within the first four months, beating out many of their competitors in the TIPC aftermarket segment. In early 1986, Ted's brother Norman Waitt was hired as TIPC's financial advisor in exchange for owning half of the company. That year, the company began selling their own hand-assembled computers locally on an experimental basis. By the end of 1986, TIPC changed their name to Gateway 2000, Inc., and earned $1 million in revenues—the experimental complete computer systems contributing only a small amount to this figure.

Gateway 2000 was inspired to produce computer systems compatible with IBM's hugely successful Personal Computer in mid-1987, after Texas Instruments had announced a rebate program allowing customers to trade in their older home computer systems (including the TIPC), in order to contribute toward a $3,500 credit on Texas Instruments' PC-compatible systems. Feeling that they could offer such computers for half the cost, Gateway 2000 released a complete PC compatible system with dual 5.25-inch floppy drives, ample RAM, a color monitor, and a keyboard, for $1,995 through mail-order. The system was a success for Gateway 2000, with revenue increasing from $1.5 million in 1987 to $12 million in 1988.

1990–1995: Early growth

In January 1990, Gateway 2000 moved their headquarters from Iowa to North Sioux City, South Dakota, in order to take advantage of South Dakota's lack of income taxes. The company expanded their advertising campaign that year, producing a number of humorous half- and full-page spreads, featuring employees of the company (including Ted Waitt) in pastoral settings, photographed by a local studio. The company extended the pastoral theme to their shipping containers, which were white with black spots, reminiscent of Holstein cows; this monochrome design scheme also contributed to low costs. Waitt recalled that "The cow spot was actually developed by a graphic designer. I can't take a claim for that. All I can take claim for it, when I saw it on a box, I said, that is amazing... it was kind of that, no matter where Gateway went, around the world, we took the cow spots. And it was taking that, you know, Iowa values, those Midwestern values with us wherever. It was our symbol."

Gateway 2000 posted $275 million in revenues by the end of 1990. Fearing that the company was growing too big for them to handle, the Waitts and Hammond recruited a public accounting firm and poached six executives from rival computer manufacturers to plot the company's growth. These executives in turn set up a number of divisions to promote innovation within the company, including a marketing department with five employees, a group dedicated to exploring new technologies with twenty employees, an "Action Group" of ten executives whom Ted Waitt deferred to every two weeks, and a "Road Map Group" to evaluate product development and branding choices. In addition, the company hired a media buyer to handle the company's advertising assets advertising and contacts with magazines and other mass media companies.

In the summer of 1991, Gateway 2000 commissioned the construction of a 44,000-square-foot manufacturing plant down the road from its North Sioux City headquarters, expected to increase its manufacturing output by 30 percent. That year, the company also expanded their dealer channels beyond the individual buyer into fleet sales to enterprises. Gateway 2000 offered such corporate clients training programs, troubleshooting literature, and more rigorous customer service. While still a private company at this point, Gateway 2000 elected to release financial results quarterly via press releases in order to project an image of legitimacy among corporate buyers. By 1991's end, Gateway 2000 posted $626 million in sales.

Despite the added research and development divisions in 1991, the company admitted to falling behind their competitors in terms of innovation. In an attempt to catch up, Gateway 2000 began segmenting its marketing to appeal to customers with specific needs beyond value and price. For example, the company began offering their desktop computers with the AnyKey, a 124-key keyboard with advanced macro programming for power users and programmers. In 1992, they released the HandBook, a lightweight subnotebook aimed at the executive market. At the end of 1992, the company added 200 people to their support and sales departments, increasing the number of total employees in the company to 1,700. By 1992's end, Gateway 2000 reported $1.1 billion in sales. The company had managed to avoid losses during a fierce price war ushered in by Compaq over the summer of 1992, becoming the leading mail-order computer business in the United States.

1995–2000: Major expansions

In September 1995, Gateway 2000 commissioned the construction of a manufacturing facility in Hampton, Virginia, worth between $18 million to $20 million and an overseas manufacturing plant in Malaysia to serve computer buyers in East Asia. In August 1995, the company purchased an 80-percent stake in the Australian Osborne retailer, and in the following November, Gateway 2000 established their first website on their first Internet domain, gw2k.com. By the end of the year, Gateway 2000 posted revenues of $3.7 billion.

In 1996, Gateway 2000 introduced the Destination 2000, an early home theater PC that used a large-screen CRT television as its monitor. It was intended for consuming home media content and multimedia software and came with a built-in modem for Internet connectivity. The Destination 2000 sold poorly, and after several months Gateway began offering these systems at retail outlets such as CompUSA at deep discounts.

In March 1997, the company opened up a number of brick-and-mortar retail locations, called Gateway 2000 Country Stores, in various suburbs across the United States. Gateway Country Stores did not stock any of the company's products but had a number on display to allow customers hands-on experience with Gateway 2000 computer systems; customers had to order by phone or through the company's new website. Their first location was in Tampa, Florida. By 1999, Gateway 2000 had opened up over 140 Country Stores.

In April 1997, Compaq Computer Corporation was in talks to purchase Gateway 2000 to bolster the former's presence in the mail order market. The deal was nearly signed, with Gateway set to receive $7 billion, before Waitt vetoed the acquisition that summer. Gateway 2000 themselves acquired two companies in the year, the first being the Amiga Technologies subsidiary of Escom AG, a German company that had filed for bankruptcy in the preceding year. Announced in March 1997, the deal was finalized in the following May, with Amiga International, Inc., incorporated as a subsidiary of Gateway 2000 in South Dakota. Gateway 2000 paid Escom $13 million for the patents to Amiga technologies, the majority of which centered on multimedia capability. In June 1997, Gateway 2000 acquired Advanced Logic Research, Inc., a maker of high-end workstations and servers, in a stock swap valuated at $194 million.

In late 1997, Gateway 2000 began phasing out the use of cows in their branding in an attempt to project a more mature image to their corporate clients. Simultaneously, the company formed Gateway Major Accounts, a subsidiary focused on fleet sales to enterprise clients. By 1997's end, the company posted $6.29 billion in revenue and $1 billion in profit.

2000–2004: Faltering and consumer electronics

Coinciding with the Dot-com bubble burst, a global downturn in the personal computer industry at the beginning of 2000 had a major negative impact on Gateway, whose dependence on the worst-hit markets of small business and home office buyers incurred significant quarterly losses. Rival PC maker Dell Computer Corporation had fared better since their main business was centered around corporate clients rather than consumers.

Weitzen laid off many senior managers within the company and broke tradition by selling Gateway's conventional personal computers through retailers such as OfficeMax and QVC. A price war instituted by rival Dell Computer Corporation led to Gateway posting a fourth-quarter loss of $94.3 million in 2000. Gateway's net profits fell to between $241.5 million and $316 million, while its stock dropped to $18 per share, down from $72 per share.

In the beginning of 2001, Ted Waitt ousted Weitzen and several other executives from the board of directors, reassuming the role of CEO and instigating an extensive restructuring of the company. Waitt shifted the company's bottom line away from service and software back to the sale of PCs to consumers and businesses, rehiring a number of executives that had been lost to the executive shuffle of late 1998. Prices of the company's computers were massively lowered to make them competitive with offerings from Hewlett-Packard and Dell, while other products, such as the Touch Pad—an Internet appliance that was the result of a joint venture with AOL—were discontinued due to poor sales. Gateway's employee base was also cut nearly in half, from 24,600 to 14,000, as part of massive consolidation of the company's manufacturing plants, call centers, and Country Stores outlets. The manufacturing facilities in Malaysia, Ireland, and Lake Forest, California, were all shuttered; meanwhile most of the company's overseas subsidiaries were closed to limit the company's business to mainly within the United States. Additionally in 2001, the company moved to Poway, California. By the end of 2001, the company reported a net loss of $1.03 billion, while revenue fell to $5.94 billion.

Gateway's sales dropped in 2002 to $4.17 billion, with the number of personal computer system units falling from 3.4 million to 2.75 million. Gateway's American market share meanwhile shrunk from 9.3 percent in 1999 to 6.1 percent in 2002. In the beginning of the year, the company laid off 2,250 employees after they had closed 19 Country Stores, a pair of technical support call centers, an Internet sales office, and a research and development laboratory. Gateway reported a net loss of $297.7 million for 2002. In the beginning of 2003, Gateway instituted another restructuring, closing 76 of its 268 Gateway Country stores and laying off 1,900 more employees in the process.

2004–2007: eMachines acquisition and consolidation

In January 2004, Gateway announced that it had signed an agreement to buy computer manufacturer eMachines of Irvine, California, for $30 million in cash and 50 million shares of stock in Gateway. eMachines was founded six years earlier as a joint venture between TriGem, Korea Data Systems, and Sotec; by 2003, it had raked in $1.1 billion in sales and became the third-largest seller of personal computers in the United States while only employing 140 people total in its corporate offices.

By the time the acquisition was finalized in March, eMachines' payout increased to nearly $300 million, and as a result of the acquisition, Gateway reclaimed the number three spot among American PC manufacturers and the eighth largest PC manufacturer globally. The president and CEO of eMachines, Wayne Inouye, replaced Tedd Waitt as CEO, the latter remaining chairman. A month later, the company announced that it would relocate to Orange County, California (where eMachines had been located); that it would shutter the remaining Gateway Country Stores—laying off 2,500 employees in the process; and that it would begin selling personal computers through third-party retailers, as eMachines had done in the past. Gateway reduced another 1,000 jobs from their manufacturing and technical support facilities in Iowa and South Dakota by the end of the year. By this point, the company only employed 4,000.

Inouye left Gateway in February 2006, by which point the company employed roughly 1,800—down from 7,500 at the start of his tenure. In fall 2006, Gateway briefly revitalized its United States manufacturing presence with the opening of the Gateway Configuration Center in Nashville, Tennessee. It employed over 300 people in that location to assemble build-to-order desktops, laptops, and servers.

2007–present: Purchase by Acer

In August 2007, Acer Inc. of Taiwan announced the acquisition of Gateway, Inc., for a US$710 million tender offer. The acquisition was finalized in October 2007. In the interim, MPC Corporation announced that it had signed a deal to acquire Gateway's Professional Services Unit—which manufactured and designed the company's servers, network-attached storage devices, and workstations—for approximately $90 million. This MPC deal was also finalized in October 2007.

Following the acquisition, Acer used both Gateway and eMachines as sub-brands for several years. Many of Acer's most popular lines of personal computers, including netbooks, were rebadged as Gateway machines for midrange consumers, while the eMachines line was kept for budget consumers. In 2013, the company discontinued the eMachines brand, citing the proliferation of tablet computers and 2-in-1 laptops among the low‑end computer market. They continued selling computers under the Gateway and Packard Bell brands — the latter being one of Gateway's former rival computer manufacturers, until it became a sister trademark after Acer acquired it in 2008. Soon afterward, however, the Gateway brand was also discontinued.

In September 2020, Acer revived the Gateway branding on laptops and tablets sold exclusively through Walmart. Acer commissioned Bmorn Technology, a Shenzhen-based technology company, to manufacture and sell these Gateway branded laptops. The new line of laptops is a rebadging of Walmart's existing EVOO-branded laptops. The laptops' sound systems are tuned in partnership with THX.