Gateway Buys eMachines

January 31, 2004

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Gateway Inc. says it will buy eMachines Inc., creating the third-largest PC maker in the American market, behind Dell and Hewlett-Packard. Gateway has lost money for 12 of the last 13 quarters while eMachines is one of the fastest-growing PC makers in the U.S.

eMachines will remain a separate brand and will continue to be sold through Best Buy, Circuit City and other big-box stores, while Gateway sells its machines through direct marketing and its own chain of retail stores.

Gateway will pay $30 million in cash and $50 million in Gateway stock for eMachines, a private company based in Irvine, Calif. While its sales are brisk, the company's customers have been plagued by problems including delayed rebates, defective power supplies and spotty warranty service and tech support.

None of this will be unfamiliar to Gateway loyalists, who encounter daunting hurdles in dealing with tech support, difficulty tracking down rebates and frustration over their extended warranties. Gateway's laptops also generate scathing comments.

Gateway's stock rose 63 cents on its announcement, as analysts saw the move giving Gateway a bigger slice of the PC market while it continues to build up its home electronics line through its retail stores.

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