Gateway on Route to Switches

Gateway entered the networking business today with switches
for small and medium businesses, schools and government agencies as it
strives to improve its product and revenue mix.

It’s the second strategic move in as many weeks for the Poway, Calif.,
computer maker. On Friday, Gateway decided
to shutter 188 retail stores and lay off 2,500 workers amid sluggish PC
sales.

The new Gateway 7200, 7400 and 7600 series products are based on technology
from chipmaker Broadcom and promise to provide
“enterprise functionality at value prices.”

The company believes the switches complete its enterprise systems portfolio
that already includes servers, storage and management software.

“Our price points are somewhat aggressive, either at Dell’s or below
Dell’s,” Gateway spokesman Ted Ladd told internetnews.com. “This is
primarily an add-on that makes us more competitive.”

In addition to Dell, HP sells switches in the space, as do traditional
network vendors including Cisco, Foundry and NetGear.

Gateway believes that larger file sizes, Voice-over-IP and gigabit network
interface cards in desktops and notebooks are driving a change
in organizations from 10/100 megabit to gigabit speeds, creating a demand
for switches that won’t cause bottlenecks.

About half of Gateway’s $4 billion in revenue comes from business customers.
Ladd credited Scott Weinbrandt, a former Dell executive lured out of
retirement to lead Gateway’s enterprise systems division last year, for the
segment’s success.

The 7200 and 7400 switches are aimed at small business and branch offices
because of their plug-and-play installation and manageability. They are
priced from $79 to $399 depending on configuration.

The 7600 series is for larger customers and feature built-in Simple Network
Management Protocol to provide better network control, direct
traffic and eliminate server bottlenecks. It costs between $399 and $799.

All of today’s switches are so-called Layer 2, or data layer, switches. At
this layer, data packets are encoded and decoded into bits. Gateway will
unveil Layer 3 switches, which handle more complex networking tasks, later
this year, Ladd said.

In other Gateway product news today, the company announced new series
wireless access points for businesses. The products stress security features
and price (starting at $299).

It’s still a time of transition at Gateway. After the acquisition of
low-price PC maker eMachines, former Gateway CEO Ted Waitt stepped aside to
let eMachines CEO Wayne Inouye take the helm of the combined company, with
Waitt remaining as chairman.

The move toward the enterprise reflects the search for the right mix of
business and consumer products. During the fourth quarter of 2003, Gateway
reported a net loss of $114 million, or 35 cents per share, on revenues of
$875 million. For 2003, its net loss was $526 million, or $1.62 per share,
on revenue of $3.4 billion. Total PC sales for the year were 2.1 million, a
24 percent decline over the prior year.

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