Acer Buys into PC Major Leagues: Gateway Gets a Daddy

By Rob Enderle August 27, 2007

Back in 2004, when Gateway bought eMachines, I thought it was likely that, eventually, Acer would pick up Gateway as the next major PC company acquisition. This was because Acer was serious about entering the US market and the only company that was affordable which had major shelf space was Gateway.

Look at the facts.

Gateway has owned the low end of the PC market with their eMachines brand for some time, has some of the strongest monitors (see their 24” widescreen products) in the segment for the price, and has recently strengthened their Gateway laptop and desktop offerings. (The new notebook computers are particularly nice.)

On the flip side, Acer has had issues coming back into the US and pulled almost all the way out a few years back after having some quality problems, then had a great deal of difficulty moving back in. Happily though, the firm does have the Ferrari line of high-end AMD based notebooks that have been in high demand. On top of this, they have also been growing in market share very strongly in much of the rest of the world. However, the US still remained a problem.

Buying Gateway allows Acer to leapfrog into the US market with a broad range of offerings, although jointly-designed products probably won’t show up until around this time next year. In fact, much of this year will likely be spent getting the merger complete – so don’t expect anything big until next year.

The Lenovo Factor

What apparently drove this to happen was the fact that Lenovo, the folks that own what we used to fondly call the IBM ThinkPad, and now just the ThinkPad, were getting ready to buy Packard Bell in Europe.

I know what you are thinking: Packard Bell OMG (Oh My God)… who would pay money for that piece of crap?! However, while Packard Bell crashed and burned in the US, in Europe it was a different story and they actually continue to deliver relatively high-quality and well-regarded products there. (I’m guessing that’s because there are likely still parts of Europe where the crap they sold here would likely result in some nasty face time with “creative” jailer… Either that or we in the US come off as being far more tolerant of junk than Europeans are.)

In any case, Acer has been doing very well in Europe and had initially attempted to buy Packard Bell, but since they are already in Europe, the value they placed on that property wasn’t as great as that Lenovo did, given that the latter firm had virtually no presence there. Essentially, Lenovo stepped in with a higher bid and Acer was about to get zapped. So Acer instead moved to buy Gateway, who already had the right to buy Packard Bell, and did an end-run, leaving Lenovo in the dust on this deal.

Now, bear in mind: Lenovo’s consumer unit is run out of and largely exists in Mainland China while Acer is Taiwanese. For those that don’t know, Taiwan and Mainland China don’t get along very well – largely because China believes they own Taiwan, and Taiwan begs to differ. Competition between the two can be kind of ugly, and I don’t expect Lenovo will take this sitting down. In other words, expect what amounts to a bare-knuckle fight between these two firms going forward – and Lenovo is no slouch, either.

You May End Up Buying Your Next Business PC

As part of this deal, Gateway is attempting to divest itself of its business lines, so that the merged company can be consumer-only. Apple, and to an even greater extent, HP, have been showing massive growth in the consumer segment and, with products like the Mojopac coming to market, the ability and demand for companies to allow, and possibly promote, the purchase of PCs increases significantly.

In the educational market, where Gateway has had a significant position, the practice of employee and student purchasing of PCs is well-established and likely to spread into business and government as these students graduate and work their way up into corporate management. Acer, as the only major consumer-only vendor, will be motivated to drive this trend. And, given that if it were up to corporations, you’d get one PC for life, this could be good not only for the PC industry but good for you as well.

Can you picture walking into a business meeting with an Acer Ferrari? I can, because I do it all the time…. and, trust me, the look on folks’ faces is worth the price of admission.

AMD Benefit

Acer has been one of AMD’s closest and longest supporters. This acquisition should help AMD a lot (and the company’s year hasn’t been going that well of late, so it could use all the help it can get). Next year will feature the first benefits of AMD’s combined CPU and GPU groups, but they needed a strong, loyal supporter to help get them there. Acer is likely that strong, loyal supporter – and much stronger than Gateway has ever been in this regard.

End Result

Acer has been more aggressive on design than Gateway and has had a limited presence in the US desktop market for some time now. The result of the merger is likely to be some increasingly aggressive (read: attractive) designs under the brand families they own. However, I think one of the brands will likely be seen as redundant unless they move to an Dell XPS-like model (which is kind of where Acer places their Ferrari co-branded product), allowing for a Lexus-like brand (which could be Acer or Gateway depending on positioning).

The war with Lenovo will likely see a well-funded push by both Acer and Lenovo into US and European markets next year, and Lenovo will be leveraging their connections with F1 Racing and the Olympics heavily as we go throughout the year. We should also see some more aggressive designs from both companies at the high-end of the market as they increasingly position against each other as product leaders.

Lenovo has a deeper intellectual property foundation. Acer is better in logistics and maintaining low cost, and will have (with Gateway and Packard Bell) better locations in retail. Overall, this will likely put more price pressure on the market, which for consumers is hard to get upset about, but may be painful for companies who don’t have the scale of a top-4 player. This puts Toshiba, Sony, Fujitsu and Apple at increased risk (however, Apple’s iPod and iPhone revenues should offset this somewhat for them) because of lower economies of scale (read: more expensive parts and less clout in times of part constraints).

At the end of this merger, there will only be four major players and one wildcard. The four are HP, Dell, Acer, and Lenovo, and the wildcard is Apple, whose consumer strategy was validated by this recent move. Toshiba and Sony are now basically out in the rain, and either may find Fujitsu is the only way to get enough stature in the market to be considered seriously again.

Of course, this likely means cooler stuff available for everyone to buy at lower prices, so hey… things could certainly be worse.

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