PC makers like Hewlett-Packard Corp. (NYSE: HPQ), Dell Inc. (NASDAQ: DELL) and Taiwan's Acer have seen computer sales decline in the past year as consumers faced a recession and tightened wallets.

Now, this isn't the first time PC sales have slumped, but it did send a red flag up a bit to those the sell the most: how about diversifying a little bit?

Taiwanese PC maker Acer has its sights set on the world's top PC maker, Hewlett-Packard Co. (NYSE: HPQ). In fact, the company predicted a 30% increase in notebook PC shipments for this quarter as it introduces a new lineup of low-cost notebooks. Acer, which picked up PC makers Gateway and eMachines in recent years, suddenly vaulted into third place behind HP and Dell, Inc. (NASDAQ: DELL). It's not longer satisfied with being third, apparently.

Acer won't be axing any jobs from the ongoing acquisition of computer brand Gateway, according to company Chairman and Chief Executive Officer J.T. Wang. In fact, he's had to fend off many inquiries on whether his strategy to get ahead of Chinese personal computer manufacturer Lenovo (OTC: LNVGY) with the Gateway acquisition and the purchase of the European PC brand Packard Bell is wise in a market where margins are so thin and changes are so rapid.

Can Acer transform three companies into one, bring larger economies of scale into the picture, create a much better name for itself in the U.S. market, fend off fierce margin pressures and competitive threats and actually grow itself moving forward? That is a large order for any company, and similar to when Hewlett-Packard (NYSE: HPQ) bought Compaq back in 2001, there will be pundits who climb all over this and say that the Gateway (and Packard Bell) purchase was a mistake.

But then last week, Acer announced a quarter that saw 5.44 million computers shipped in its Q3 period -- a growth rate of 59% from the year-ago quarter. Well, duh. Why wouldn't sales spike in a year where a major acquisition took place? Acer's Q3 profit also went up, landing at $90 million (up 58% from 2006's Q3 period).

After market jitters due to acquisition worries in August, Acer's shares hit a 52-week high yesterday on the Taiwan market. This is still too short of a time to judge the Gateway purchase strategy, but it's a good start for Acer, which most likely stands to make more than the $710 million price tag for Gateway in the next three years or so. That is, unless PC sales slump, which they have not been doing in recent years as laptop sales have caught on fire.

Dell Inc. (NASDAQ: DELL) stock is trading lower today as Taiwanese computer maker Acer has completed its tender offer for struggling U.S. PC vendor Gateway (NYSE: GTW). The combined company will be the world's third-largest PC vendor, behind Hewlett-Packard (NYSE: HPQ) and Dell, possibly putting some pressure on the top two. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on DELL.

After hitting a one-year high of $29.61 in July, the stock has been shaky over the past three months. This morning, DELL opened at $28.05. So far today the stock has hit a low of $27.85 and a high of $28.22. As of 11:10, DELL is trading at $27.87, down 31 cents (-1.1%). The chart for DELL looks neutral and improving, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bearish hedged play on this stock, I would consider a January bear-call credit spread above the $32.50 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in 3 months as long as DELL is below $32.50 at January expiration. Dell would have to rise by more than 33% before we would start to lose money.

DELL has not been above $30 since early 2006 and has shown some resistance around $28.50 recently. This trade could be risky if the company's earnings (due out on 11/29) are a positive surprise, but even if that happens, this position could be protected by the resistance the stock formed when it topped around $29 in July.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in DELL, GTW, or HPQ.

While the news that Acer would be acquiring Gateway (NYSE: GTW) did wonderful things for shares of Gateway, the same cannot be said for Acer. Acer, a Taiwanese company also traded on the London Stock Exchange, is down more than 10% since the announcement of the deal.

Critics believe that Acer is overpaying for Gateway, and also anticipate that the company will have trouble integrating the brand. But in an interview with the Financial Times, the usually soft-spoken Wang-Jen Tang defended the acquisition, saying that it was the company's best shot at achieving profitability in the North American markets -- Acer simply doesn't have strong brand recognition here, and Tang is hoping that the Gateway and eMachines brands will allow the company to lift its net margin in the US into the 2-3% range.

Only time will tell who is right, Tang of the market, which has spoken clearly about how it feels about the deal. But history has demonstrated amply that, the vast majority of the time, acquisitions fail to create value. If Tang is right, this will have to be the exception.

From an investor's perspective, Gateway shares are probably not worth buying, as some had suggested as recently as last week. Given that many observers feel Acer is overpaying, a competing bid seems unlikely to emerge. And what company would want to jump in when the company that just announced the deal has seen its stock hammered in the past week?

Dell, Inc. (NASDAQ: DELL) is set to release Q2 financial results tomorrow in what is probably one of the more highly anticipated earnings releases in quite a while. Just a few weeks ago, the company concluded its own internal financial investigation into possible financial shenanigans and the results included over $150 million in quarterly restatements stemming back to 2002. The official SEC investigation is not through yet.

Dell's reports tomorrow will shed some light on the fight the computer maker has had since January of this year to try and catch up to larger rival Hewlett-Packard Co. (NYSE: HPQ), which reported a touch under $25 billion in revenues for its latest quarter. Has Dell seen increased shipments of PCs with its newer and colorful laptop systems? Is the Wal-Mart retail relationship going well for the company? These questions and many more are on tap for tomorrow's call.

Analyst expectations are for Dell to report an earnings figure of 30 cents per share on revenue of $14.63 billion. The company should be able to make that number despite supply problems that have set back newer and colorful Inspiron notebook shipments (according to industry watchers). It will be interesting to see if any analyst questions come up about this week's acquisition of smaller PC rival Gateway, Inc. (NYSE: GTW) by Taiwan's Acer. Stay tuned tomorrow for liveblogging coverage of the Dell Q2 webcast and call.

Shares of Gateway Inc. (NYSE: GTW) soared on Monday when the company agreed to be acquired by Acer for $1.90 per share. The stock closed at $1.85 on Tuesday, a spread of a little less than 3% below the expected closing price.

According to TheStreet.com, there may be more to come. Senior writer Alexei Oreskovic cites an unnamed source who claims that the deal has an out for Gateway if it can find a superior offer, and Chinese Lenovo would appear to be a possible contender.

While the Acer deal presented a huge premium over the stock's most recent closing price prior to the announcement -- more than 50% -- it's actually lower than the stock was trading as recently as May. Even with the deal, there are still a lot of shareholders underwater, and that could spark a shareholder rebellion of sorts. Gateway is in the early stages of a turnaround, and I know many investors had a long-term target much higher than $1.90.

Shares of Gateway, at their current price, may represent a low-risk speculative opportunity. The worst-case scenario (barring something really bizarre) is that you can tender the shares for $1.90 when the deal closes. If another bidder emerges, there could be tremendous upside.

The personal computer world just never stops changing. In addition to Acer's buyout announcement involving Gateway, Inc. (NYSE: GTW), Quanta Computer -- the world's largest notebook computer contract manufacturer -- has just lost its CEO. Quanta, which makes notebook computers for such names as Dell, Inc. (NASDAQ: DELL) and Apple, Inc. (NASDAQ: AAPL), witnessed the weekend resignation of CEO Michael Wang, which leaves quite a few questions unanswered in the personal computer space. Quanta is not a name known to many consumers, but the company has in many ways been responsible for the multi-billion dollar transition from desktop computers to notebook computers over the last few years.

Is Quanta about to be sold to Hon Hai Precision, which is Taiwan's largest electronics conglomerate and the world's largest contract manufacturer? Possibly, and this recent move may indeed signal what lies just ahead. Former CEO Wang was in disagreement with the company's co-founder (Barry Lam) over the strategic direction of Quanta, which no doubt revolved around the rumored impending sale of the company.

Hon Hai may be known better by the fact that it makes Apple's iPods. However, the one large electronics contracting segment it is weak in is notebook computer manufacturing. With notebooks displacing traditional desktop computer units as the PC of choice for a majority of consumers (and businesses as well), having a strong presence here would seem natural for the largest electronics contract manufacturer in the world.

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.

In a move to create a worldwide PC operation, Taiwan-based PC maker Acer has agreed to buy Gateway (NYSE: GTW) for $710 million, or $1.90 a share. Gateway closed at $1.21 on Friday.

Gateway will also exercise it right of first refusal to buy Europe PC company Packard Bell. Chinese PC company Lenovo has been trying to acquire the firm to improve its reach in Europe.

Douglas A. McIntyre is a partner at 24/7 Wall St.

Just when you thought the exploding lithium-ion battery problem was over, Gateway, Inc. (NYSE: GTW) has thrown its laptop into the ring.

Gateway announced yesterday that it is voluntarily recalling around 14,000 Samsung-made laptop battery packs that were sold for three months in 2003. The problem, according to Gateway, is that the lithium-ion battery packs can overheat, potentially causing a fire.

That's hot.

Over 10 million lithium-ion batteries have been recalled worldwide since 2006. The recall has hit computer companies blindly, including Sony Corp (NYSE: SNE), Dell Inc (NASDAQ: DELL), Apple Inc (NASDAQ: AAPL), Lenovo Group (OTC: LNVGY), and Toshiba Corp (OTC: TOSBF). Now Gateway.

MAJOR PAPERS:

• Higher interest rate are making commercial real estate deal makers think twice about deals, according to the Wall Street Journal's "Heard on the Street," sending shares of companies like Archstone-Smith Trust (NYSE: ASN) down from $64 to $60.75 a share.
• The Financial Times reported that U.S. senators have proposed new laws that would impose higher taxes on private equity firms that list their shares on stock exchanges, a move that could be a blow to private-equity firm Blackstone Group, which is seeking to list its shares.
• The U.S. and U.K. are working on a treaty that would allow Britain to buy American weapons without obtaining export licenses, the Financial Times reported; any deal on the issue could face opposition in the U.S. Congress, although the British believe eliminating the need for the licenses would expedite the arms purchasing process.

OTHER PAPERS:

• Turnaround candidate Eastman Kodak Company (NYSE: EK) may be ready to shine, BusinessWeek's "Inside Wall Street" column reported, and now may be a good time to evaluate a potential EK play, according to investment advisor Gregory MacArthur.
• Gateway Inc (NYSE: GTW) is selling products in China for the first time in a pilot program with Digital China Holdings Ltd, the LA Times reported.
• According to The Nation, The Dow Chemical Company (NYSE: DOW) is planning to ask its board of directors later this year for approval to invest in five petrochemical projects in Thailand.
• Cementos Portland Valderribas, a unit of Fomento de Construcciones y Contractas is planning a bid for Texas Industries Inc (NYSE: TXI), the Expansion reports, citing people close to the situation.

Lost this morning in all the news about Hewlett-Packard's (NYSE: HPQ) PC share growth and Dell's (NASDAQ: DELL) fall from grace was the increase in the sales of Apple (NASDAQ: AAPL) Macs reported late yesterday.

Sales of the Mac rose 30% during the first quarter and its market share hit 5% in the U.S., according to Gartner. Hewlett-Packard and Toshiba both grew over 25%, but the Apple number is still impressive. If the Mac continues its current growth, it could pass both Toshiba and Gateway (NYSE: GTW) in the next two years.

Investors forget about the Mac. In the last reported quarter, Mac sales were up 40% to $2.4 billion. That was out of total revenue of $7.1 billion for all of Apple.

iPod sales may falter, and the iPhone may not turn out to be a big hit. But, there is always the Mac, growing at 40% a quarter.

Douglas A. McIntyre is a partner at 24/7 Wall St.

A fellow I know is preparing himself for a college education in veterinary science. Knowing that I slink around the internet tech world, he came to me looking for advice about what notebook computer he should buy. He plans to spend between $400 and $600 and he wants to get the most for his money (smart kid). He needs his machine for internet access, music downloads, heavy-duty emailing and of course for some school work.

It occurred to me that because my computer experience is limited to desktop models I might not be Andy's best source of information on the latest notebooks. So I told him that I'd present the question to our readers and deliver your input back to him. Knowing that our readers are some of the brightest minds on the internet, I have no doubt that Andy will get his best information right here on BloggingStocks.

So, the question is:

What is the best laptop computer that Andy can get for between $400 and $600 and what should he expect as far as speed, memory, peripherals and overall performance?

As this earnings period begins to wind down, with most of the juggernauts already having reported, we begin to see reports from some smaller, lesser known companies, along with reports from former high-fliers like Gateway Inc (NYSE: GTW) and Overstock.com Inc (NASDAQ: OSTK).

Monday February 5

• Overstock.com to report Q4 earnings, conference call at 11am.
• PDUFA date for Watson Pharmaceutical Inc's (NYSE: WPI) Actoplus XR for non-insulin dependent diabetes mellitus.

Tuesday February 6

• Nike Inc (NYSE: NKE) to hold Analyst Day at 12pm. Credit Suisse First Boston believes Nike will announce the rollout of a specialty retail store concept at the meeting.

Wednesday February 7

• Equinix (NASDAQ: EQIX) to report Q4 earnings; conference call at 5:30pm. Kaufman Brothers notes that the company's last overhang was removed in the middle of January and it sees a $93 price target on the stock.
• PDUFA Date for Roche Holding's (OTC: RHHBY) Cera for chronic renal disease.

Thursday February 8

• Monthly sales reports reports due from Abercrombie & Fitch Co (NYSE: ANF), Limited Brands (NYSE: LTD), Nordstrom, Inc (NYSE: JWN) and Wal-Mart Stores Inc (NYSE: WMT).
• Gateway to report Q4 earnings; conference call at 5:30pm.

Friday February 9

• Corning Incorporated (NYSE: GLW) to hold Investor Meeting at 9am with presentations from its CEO and CFO.