Gateway's (NYSE:GTW) newest gamble will be to ditch consumer electronics and focus on its original offering, PCs, according to The Wall Street Journal. This represents yet another shift in direction for the company, seeing how it recently shuttered its retail stores, getting together with retailers such as Best Buy (NYSE:BBY) and CompUSA. Is this a great idea or a possible misstep?
There are a lot of angles that lend themselves to arguing either side. Companies that focus generally stand a good chance at success. In this commentary from April, Tom Gardner explored the idea that focus is often key to good business (and good stock selections). He reminded us of an Italian proverb that many of us could use in all aspects of life: "Often he who does too much does too little."
However, the WSJ pointed out that some of the consumer electronics products that Gateway provides, such as flat-screen TVs, have higher profit margins than PCs. Plus, Gateway is struggling to steal market share from other PC heavyweights such as Dell (NASDAQ:DELL) and Hewlett-Packard (NYSE:HPQ). There's even Apple's (NASDAQ:AAPL) loyal following to contend with, and what no longer seems like such a far-fetched possibility -- that the popularity of the iPod could excite sales of Macintosh computer products.
And while high-end TVs have been a real crowd-pleaser, the competition is as steep as within the PC industry, with names such as Sharp, Sony (NYSE:SNE), and Dell in the mix. Fool contributor Rich Smith has been following the space lately and recently observed greater competition is on the horizon (sure to benefit consumers who want high-end TVs on the cheap). So maybe it is the perfect time for Gateway to exhaust its inventory of TVs and focus on what has always been its core offering, PCs.
On the other hand, though, market research organization Gartner recently prognosticated that worldwide PC sales this year will be a little cooler than previously anticipated. Here in the U.S., there may be a few reasons to worry about the demand for electronics -- prospective buyers may be concerned about their high revolving credit card debt (if you fall into that category, be sure to check out our Credit Center for tips on repairing ailing credit) and the specter of rising interest rates.
This gamble of Gateway's may, of course, pan out as the company struggles for a turnaround. However, it smacks of a risky endeavor in an area that's got a fair amount of uncertainty, and for now, whether Gateway can successfully grab back a larger portion of the PC market from brutal rivals is anybody's guessing game.
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Alyce Lomax does not own shares of any of the companies mentioned.
