Acer's strategy in buying Gateway (GTW) for $710 million

Taiwan's Acer continues its march for dominating the entry-level and mid-level segment of the laptop computer market (and some desktop computers as well) by buying a well-known brand name in the U.S. computer marketplace: Gateway, Inc. (NYSE: GTW). Was this seen coming? Looking at last year's GTW price performance, probably. GTW shares stand at under $1.25 each right now. Time was ripe for a buyout, since Gateway is the third-largest PC vendor in the U.S. behind Hewlett-Packard, Inc. (NYSE: HPQ) and Dell, Inc. (NASDAQ: DELL). Buying it for under a billion is an obvious coup for Acer. Even if the company's financials are in shambles, the name alone is worth what Acer is ponying up.

Acer, Inc., which has seen a resurgence in recent years as it aggressively competed with Toshiba, Hewlett-Packard and Gateway in the market for PCs at computer and general merchandise retailers, plans to buy Gateway for $710 million, or $1.90-per-share. What is Acer's reasoning? A few things: a cheap acquisition price and instant market share gain. This will propel it closer to taking on retail computer titans like HP and Toshiba, and possibly even Dell should the company stretch out further into retail channels outside its current relationship with Wal-Mart Stores, Inc. (NYSE: WMT).

Acer's position as the fourth-largest PC company in the world behind HP, Dell and Lenovo group will be strengthened by the Gateway purchase, no doubt. The high expectations at the time the bargain-basement PC brand e-machines and Gateway joined forces a few years ago, were soon dashed away completely and the brand has been declining ever since. It's still the third-largest PC vendor in the U.S. solely by virtue of being on the shelves of so many retailers, but that's all the Gateway brand has going for it. My guess: Acer will keep the name for a while to see how it grows, and may jettison it in 2008 completely if the brand remains stagnant.