Gateway PCs head back to the low end

Having admitted defeat in its strategy of pursuing higher margins with feature-packed PCs, Gateway is planning to compete against the top PC makers in the U.S. on price with the new Gateway 310 series PCs, which were announced Thursday.

The three PCs in the new 310 series are designed to stack up against low-cost products from market leaders Dell and Hewlett-Packard, a spokeswoman said. Prior to the second quarter, Gateway had tried to raise its operating margins by focusing on high-end and midrange PCs, but that strategy hurt the company's overall PC sales, it said during its presentation of first-quarter earnings results.

The new PCs will be available through Gateway's retail stores, which the company hopes will help increase sales of peripherals to accompany the PCs. As part of its latest strategy to reinvent the company, Gateway is working to increase its presence in the consumer electronics market, with products such as plasma televisions and personal digital assistants. 

The least expensive model is the Gateway 310SE, which comes with a 2.2GHz Celeron processor from Intel, 128MB of DDR (double data rate) SDRAM (synchronous dynamic RAM), a 40GB hard drive, and a CD-ROM drive for $399.

For $799, customers can purchase the 310X, which comes with a 2.4GHz Pentium 4 processor, 256MB of DDR SDRAM, a 40GB hard drive, a DVD-ROM/CD-RW drive, and a 17-inch CRT (cathode ray tube) monitor.

The third PC, the 310S, and the 310X can be purchased and immediately taken home from Gateway stores starting Aug. 7. Limited configurations of those PCs will be available. All three PCs will be available through Gateway's Web site, and on order at Gateway stores.

Before Thursday's announcement, Gateway had only two low-priced PCs in its 300 series, which the 310 series will replace. The 300S was priced at $499, and featured a 2.4GHz Celeron processor and 256MB of DDR SDRAM.

Dell and HP are battling neck-and-neck for the low end of the Windows desktop market. Both companies offer PCs that cost $349, after $50 mail-in rebates. Gateway might have scored more points with potential customers by coming in under Dell's and HP's prices, said Toni DuBoise, an analyst with ARS in La Jolla, Calif.

"Gateway will have to recoup the trust of the value segment, but it's something they have experience in. It's a matter of whether they will or want to sustain brand identity in this space," she said in an e-mail interview.

While it's important for Gateway to demonstrate it is still committed to its PC product line, the new low-end PCs probably don't represent a change in strategy for the company, DuBoise said. The average price of a desktop PC is about $750 right now, as consumers prefer to add memory, storage, and CD rewritable drives to their PCs, she said.