In the world of computing, is Gateway (NYSE: GTW ) making all the right moves? Yesterday's news that the PC maker cancelled a deal with Affiliated Computer Services (NYSE: ACS ) sent its stock down nearly 14%.
It was a rumor about this new development that sunk the stock yesterday. Word is that Gateway may have to pay a pricey fee to sever its relationship with Affiliated Computer Services. Through the deal, which was supposed to have lasted seven years, Gateway was to receive outsourced services in IT, financing and accounting, and human resources. Due to its recent acquisition of eMachines, ACS's services are no longer needed. The press release from ACS mentioned that severing the relationship will positively impact both its revenues and earnings through the remainder of the year.
The specter of a fee, of course, is daunting for Gateway. Despite its quarterly losses, one of Gateway's positive aspects has been its accumulated stash of cash.
Anyone who's been following Gateway -- or even the computer industry at large -- has likely been aware of Gateway's travails, which could account for yesterday's initially bitter reaction. Although many companies have enjoyed the fruits of a gradually improving economy, like Motley Fool Stock Advisor pick Dell (Nasdaq: DELL ) , Gateway has still floundered in a climate where many hoped its outlook would improve.
Case in point, Gateway's plans to shutter its retail stores gave investors something to chew on; recent earnings news was not too comforting. While Gateway has done the same as other old-school computer companies like Dell and perpetual scrappy underdog Apple (Nasdaq: AAPL ) by expanding into consumer electronics, it hasn't quite gotten out of the gate.
There's something to be said for not automatically jumping to conclusions on rumors (not to mention, the market at large had a tough Monday), but a recent history of losses hasn't given investors a reason to feel too warm and fuzzy about Gateway. However, for all that it sounds tough now, the question is whether over the long term, internalizing operations and changing business strategy will revitalize Gateway.
Do you want to take the subject of Gateway and its signature cowprint and milk it for all it's worth? Sidle on over to the Gateway discussion board.
Alyce Lomax does not own shares of any of the companies mentioned. Though Gateway's trademark cow spots are whimsical, her computer of choice was once known as near an overdose of whimsy -- a first-generation Apple iMac.