HP eyes aspiring gearheads with new PC brand

SAN FRANCISCO--Hewlett-Packard plans to introduce a new category into its PC lineup, hoping to snag buyers who would like the best but are on a budget.

HP has yet to come up with a name for this strategy but has a clear idea of the kind of buyers it wants to attract, said Phil McKinney, vice president and general manager of HP's gaming business. "These are customers who are going up to the high end, but don't need all that customization," he said.

The announcement came as part of an event designed to highlight HP's progress in PC gaming since acquiring Voodoo PC last year. Rahul Sood, the founder of Voodoo and now chief technology officer for HP's gaming division, outlined the new strategy. Sood used the analogy of a Mercedes brand when describing the forthcoming segment, sandwiched in between Voodoo as Maybach, HP as Smart (but maybe an Accord is more appropriate), and Compaq as Chrysler.

This is almost precisely the same language that Dell used to unveil its XPS PC brand back in 2005--although it borrowed from the Japanese car market with its "Lexus" strategy. The idea was relatively the same; to go after PC customers who couldn't afford a boutique PC from the likes of Voodoo or Alienware (later acquired by Dell), but who wanted the best performance on their block. Those types of PCs--with high-end components--are more profitable for Dell and HP than their lower-end cousins.

McKinney wouldn't provide many more specifics on the new "Mercedes" strategy, but did say, "We're not going to go off and create a fourth brand." HP currently sells PCs under the Voodoo, Pavilion and Compaq brands.

The new systems will include desktops, notebooks and handhelds, and should be available by the end of 2007, McKinney said.

What Wal-Mart means to Dell

news analysis Dell is adding a new dimension to its sales strategy, but it's unclear if this move can get the company back on track.

Since its beginning, Dell has prided itself on its direct-to-consumers sales model, but the company announced Thursday it will begin selling two of its Dimension desktop models in more than 3,000 Wal-Mart stores beginning June 10.

Though it's a significant change of strategy, it does not mean Dell is abandoning its direct sales model. "The direct model, we believe in it as much as we ever have," said company spokesman Bob Pearson.

It's not a completely unexpected move. Last month, founder and Chief Executive Michael Dell sent an e-mail memo to employees discussing the company's direction that said "the direct model has been a revolution, but is not a religion," according to The Wall Street Journal. And just last week, Dell made more waves in the retail community when he told Computer Reseller News in an interview that the company could be expanding into stores.
"I think that it is the equivalent of turning the Titanic around to avoid the iceberg."
--Stephen Baker, vice president, The NPD Group

Dell says it chose Wal-Mart because of how well it knows its customers. "Ninety percent of Americans shop in a Wal-Mart," said Pearson. "We're comfortable they know their customer experience."

The world's second-largest PC maker insists the Wal-Mart retail relationship is "not a pilot" program, calling it "part of a global retail strategy that you're going to hear a lot more about." Still, deciding to sell PCs retail is not a simple undertaking.

"I do think it's a very difficult cultural shift moving from selling direct to selling both direct and indirect," said Stephen Baker, vice president of industry analysis for The NPD Group. "I think that it is the equivalent of turning the Titanic around to avoid the iceberg. I'm not sure, it remains to be seen if that's the right way for them to revitalize their business, in my opinion."

Dell is under pressure to turn itself around. In the past year it lost its mantle as the world's No. 1 PC maker to Hewlett-Packard, and has seen a shake-up of management. Most notably, CEO Kevin Rollins was replaced by the company's founder in January.

Dell's worldwide PC shipments dipped by 6.9 percent in the first quarter of this year, which caused its market share to shrink from 18.2 percent to 15.2 percent, according to data collected by IDC.

Meanwhile, its main rival, HP, saw its PC shipments grow by 28.2 percent in the first quarter, compared with the same period a year ago. That lifted its market share from 16.5 percent worldwide to 19.1 percent, according to IDC.

The Wal-Mart factor
Selling through Wal-Mart is a good move for almost any company because of the exposure its products will get. It gives Dell a chance to reach a new customer base. Thus far, Dell has chosen to sell just two of its lower-end desktops, which isn't particularly risky. And Wal-Mart is a retailer that doesn't usually require an extended commitment.

"I think this is the proverbial putting your toe in the water without getting really, really wet," said Baker. "It's a way for them to test how they can really work with retail--how their organization is going to absorb selling through retail, how they can manage having products sold by outside third parties they can't control."

The dollar value of its new Wal-Mart sales won't be nearly as important or valuable as the experience it will give Dell as a retail newcomer. Altering its traditional business of selling desktops and notebooks directly to customers will require many changes, such as altering its supply chain and even how it advertises its products. A practice run will be likely be more valuable than the receipts it rings up, analysts agree.

"For Dell, it's not necessarily about the sales or sales volume. Even if they're shipping 10 of each SKU (stock-keeping unit) into all those Wal-Marts, you're only talking 50,000 units, which isn't a huge amount considering they sell a few million every quarter," said Baker.

The Wal-Mart relationship will also be a way to develop a retail track record. Once the first shipments sell through, Dell will be able to take the data--such as the rate at which units were sold--and go to retailers with which it does not have relationships and demonstrate Dell's ability to move products in the retail channel, which is what retailers care about, according to Richard Shim, an analyst with IDC.

Dell has flirted with retail before. In 2005, Dell laptops quietly showed up on the shelves of Costco. It also struck a similar deal with CompUSA in 1991. The Wal-Mart and Costco strategies are similar, since both retailers have wide distribution and like to move product very quickly, said Shim.

But Dell insists that the Wal-Mart relationship is different because the volume of product involved is significantly higher than it was with Costco, and the Costco deal wasn't part of a larger global strategy.

The challenge will be how quickly Dell can move. "They're getting a lot of pressure for this sort of thing to happen because their competitors are eating their lunch in the consumer retail space," said Shim. "It's definitely something they have to react to. The longer it takes them, the riskier it becomes."

Gateway makes first foray into China

Gateway will finally start to sell PCs in China this summer while Dell will try to target upscale consumers in the country.

Gateway, which is still one of the largest PC makers in the U.S., will sell its PCs through Digital China, according to representatives from Digital China and Gateway. Digital China has formed a team to handle the Gateway deal and start selling the company's PCs in August.

International sales have always been a sore point for the Irvine, Calif.-based PC maker. Back in the go-go late 1990s, Gateway laid out plans to expand into several countries. The tech market imploded and Gateway retrenched. This will be Gateway's first foray into China, a Gateway spokesman said.

It won't be easy. China has its own PC brands, and most of the multinational vendors are already there. The country also boasts a large number of "white box" manufacturers and dealers specializing in bargain PCs. Although China remains one of the fastest-growing PC markets in the world, many local consumers are very cost-conscious.

Meanwhile, Dell is expected to launch fashion PCs in China later this summer, targeting the growing number of well-heeled shoppers in Shanghai and Beijing, according to sources quoted in the local media. Dell currently has two separate brands of high-end PCs. It makes Alienware PCs, mostly for gamers, and sells the XPS line under the Dell brand. The XPS line is already available in China.

China is a developing country, but in downtown Beijing brands like Burberry, Mercedes and Ritz Carlton are tough to miss. Dell spokespersons in the U.S., as of press time, did not return calls for comment.

Dell has historically been one of the more successful foreign PC makers in China, but the growth in sales has slumped with the overall slowdown at Dell. Dell could not be reached for comment.

Multinational PC makers often bundle in software with the sale of computers, which helps put a dent in piracy. Still, software piracy remains rampant and computer dealers sell various versions of Windows for a little more than $1.

Apple homeward bound with new iMacs, iLife

news analysis CUPERTINO, Calif.--Apple's fourth major event of the year was a bit more understated than the previous ones, but provided another glimpse of the company's view of the personal computer.

Apple CEO Steve Jobs unveiled new iMacs with aluminum and glass exteriors, keeping the rumor mill honest this time. Apple's iMac is an all-in-one computer where the motherboard sits behind a flat-panel display, in a more streamlined approach to the traditional desktop PC.

The company also updated its software for home Mac users, known as the iLife suite. The five applications that make up iLife '08 aim to help Mac users organize "user-generated content"--that ubiquitous Web 2.0 phrase--for both internal consumption at home and showcases that can one-up the Jones' trip to Nepal.

It's been a busy year for Apple. From January to June, it seemed everything was about the iPhone, while in the interim the company has been scrambling to get Leopard, the next version of the Mac OS, ready to ship in October. However, Tuesday's event featured far less glitz and hype as Apple introduced new products for its audience of home-media enthusiasts.
Photos: Apple unveils new iMacs, apps

Apple separates its Mac customers into two main categories: the developers and creative professionals who use its heavyweight Mac Pro desktop and MacBook Pro notebook, and the rest of us, who get iMacs and MacBooks. It's been a good year for Mac shipments, which increased by 33 percent during Apple's last quarter, but the iMac product had been stale for quite some time.

So Apple borrowed the aluminum finish that it has previously reserved for its professional products, remaking the iMac in black and silver and taking a few inches off its waist. A glass display completes the look, along with a new slimmer keyboard and Intel's latest processors.

But Jobs sped through the introduction of the new iMacs to spend most of the morning walking attendees through the improvements to iLife and iWork, Apple's suite of office productivity applications. Apple's pitch for so-called "switchers" centers largely on the iLife suite as a friendly way of organizing the pictures and videos that pile up in the Digital Age.

Shiny hardware might get customers in the door, but software is where people spend their time, and where they form an attachment with their computers. The iron curtain of the past between Windows and Apple software is more of a backyard fence these days after the success of iTunes on Windows, software like Boot Camp, and the increasing percentage of time most of us spend on the Internet, rather than using desktop applications.

So to draw curious neighbors over the fence, Jobs likes to show family-friendly applications when showing off new Macs or software, appealing to the desire of those in attendance to easily create a digital record of their children's hijinks both for posterity and for distant friends and family. For example, Jobs showed how the new iPhoto and iMovie applications can organize photos and home movies and upload them to new Web Galleries hosted by the company's .Mac service, which also now allows customers to store up to 10 gigabytes of data for $99 a year, up from just 1GB of data.

The new iPhoto application automatically sorts pictures by "events," really just compiling all the photos taken on a given day. You can "merge" or "split" events that took place over several days, or multiple events that took place on a single day.

The iMovie application was singled out as having received the greatest overhaul between iLife '06 and iLife '08. Jobs told a story about an Apple engineer who wanted to make a short home movie of his trip to the Cayman Islands, but got frustrated by how long it took to create that movie in either iMovie or Final Cut Pro, Apple's professional video-editing software. The result was iMovie '08.

A trip down computer memory lane

reporter's notebook BOULDER CREEK, Calif.--Can you imagine a computer history museum that has to be packed up and put away each winter and then unpacked each summer, and which has three potbellied pigs as its mascot?

I can, because I've just visited the DigiBarn, a wonderful trip down silicon memory lane that's nestled in a 90-year-old barn, close to a 19th-century farmhouse deep in the Santa Cruz mountains, about 90 minutes south of San Francisco.

The DigiBarn, which is the pride and joy of NASA contractor Bruce Damer and his partner in curation, Alan Lundell, is what might be termed a temporary museum in transition. That's because, on the one hand, it is always growing as the aging lions of Silicon Valley donate their old playthings, and on the other, very wet winters force Damer and Co. to put everything in boxes every year to avoid losing it all to rust.
Click for gallery

Yet the collection is surprisingly broad, taking visitors from early 20th-century mechanical calculators all the way through modern Web appliances, stopping along the way to focus on several important elements of the computer revolution.

Naturally, the museum--which requires an invitation, or attendance at the fairly infrequent open houses, including the first one of the year Saturday--isn't as polished as something like the Computer History Museum, in nearby Mountain View, Calif. Then again, there's something particularly charming about the contrast between hundreds of high-tech machines and the three pigs that live just outside, whose mascot status is represented inside the museum by many stuffed and toy pigs.

The DigiBarn's sense of charm is on display the moment you walk into the old farmhouse and come face to face with a series of comptometers, old mechanical adding machines from the 1910s and 1920s that were made by the millions.

"The ladies of Los Alamos would use the comptometer to do differential equations for the (Manhattan Project)," Damer said.

Next up is a circa-1971 E-6 flight computer, a small, flat, purely mechanical tool pilots used--and still use, it turns out--for various navigation purposes.

Damer said a group of pilots had recently visited the DigiBarn and had been taken by seeing the E-6 in the collection. He said he asked if they still used the devices, which look a little like a computation wheel, and they told him emphatically that they do.

"'Oh, yeah,'" Damer recalled the pilots answering. "'You don't want to use anything with a battery in it (while flying) because if the battery fails, you're shot.'"

Another mechanical device also stood out in the entryway: a Curta, a round, wind-up computing tool used by, among others, Formula One race car mechanics known at the time as "Curta jocks" to determine race car speeds.

Apple and Microsoft
The DigiBarn pays proper homage to Apple, given its proximity to Cupertino, Calif. Among the first pieces in the collection--though there's an old Mac SE and a Mac Classic II on a shelf just inside the barn's entrance--is a set of Newtons, the first real attempt at the PDA.

Lundell--a longtime Silicon Valley reporter who co-founded the DigiBarn with Damer--held his new iPhone up to the Newton for comparison. The iPhone is about one-third the size and looks ever so much sleeker than its old cousin.

In the next room on the tour, the "Lineage Timeline," which covers the development of personal computers from 1975 to 1990, Damer has accumulated quite the roster of crucial machines from the PC revolution.

Naturally, no such collection would be complete without an Altair 8800, the machine made by Albuquerque, N.M.-based MITS. In 1975, the BASIC language for the machine was written by a small start-up company--that would soon get a little bigger--run by Bill Gates and Paul Allen.

Another trip down memory lane in this room was an original Commodore PET from 1977, whose major innovation was that it had BASIC installed in ROM rather than requiring a cassette reader.

There's also a Processor Tech Sol Personal Computer from 1976, which Damer said was the first packaged personal computer.

"The nerd days ended when companies started packaging computers that people would actually buy," Damer said.

The Sol, he added, was the machine that motivated Steve Jobs and Steve Wozniak to package the Apple II after their Apple I had been more of a kit computer with no case.

So Jobs got $100,000 in venture capital to make the Apple II case. That computer read Applesoft BASIC off cassette, and the DigiBarn collection includes an original Microsoft BASIC tape for the Apple II from 1977, which Damer said is "one of the first artifacts linking Microsoft to Apple."

Acer seizes opening with Gateway

news analysis Acer needs help getting ahead, and Gateway needs help keeping up. Both hope a merger will do the trick.

The Taiwanese PC maker announced Monday that it would purchase Irvine, Calif.-based Gateway for $710 million, or $1.90 per share.

It's not completely unexpected. Acer said earlier this year it was in the market for a smaller PC company, and intended to pass Lenovo as the world's third-largest PC company. This deal should do just that. The two companies combined shipped 18.6 million units and covered 8.1 percent of the worldwide PC market, according to research firm IDC. That would put Acer behind Hewlett-Packard and Dell, and squarely ahead of Lenovo.

"We're at a state where this makes sense. The PC market is a mature market, and consolidation is the way these companies are going to get to fast growth," said Richard Shim, an analyst with IDC.

"Fast growth" is the name of Acer's game. It's been the world's fastest-growing PC maker for the past three years in a row. In 2006, the company's shipments grew by almost 40 percent.

For Acer, the acquisition is also about grabbing a larger chunk of the U.S. market. Despite its swift rise to the top tier of PC makers in units shipped, it's been more difficult for the company to get its notebooks on retail shelves. And Gateway has floundered for several years, so the deal seems to make sense for both companies.

But will it work? Acquiring a struggling PC maker has historically been a difficult thing to do, particularly given the low margins in the market. "One example that has been successful has been HP's acquisition of Compaq. But that took three years to come to fruition," said Gartner analyst Charles Smulders. "I think, in this case, Gateway has gone through a period of cutting costs so it's a very streamlined organization, which should make integration an easier process."

Gateway, of course, needs the help. The company has struggled in the highly competitive notebook market. Though its retail presence was initially successful, staying competitive with price reductions led by HP and Toshiba in the midprice notebook market is difficult. The company hasn't had better luck on the retail desktop side.

"The Gateway brand had been strongly positioned as a midpriced brand at retail. eMachines has been branded at an entry-level price point, but it's struggled in the last year as consumers have been replacing entry-level desktops with entry-level notebook purchases," said Stephen Baker, vice president of industry analysis at NPD Group.

Acer should benefit immediately from Gateway's strong brand-name recognition in the U.S. Longer term, Gateway brings to Acer its established relationships with retailers. Acer said it plans to keep the Gateway brand in the United States, which could help it wield a two-pronged brand strategy in the same way as HP has done with Compaq.

Gateway already has a two-brand strategy, with Gateway positioned in the midlevel price range and eMachines as its entry-level brand, after acquiring the small company in 2004. But analysts seem split on whether Acer will keep the eMachines brand.

In the low-end desktop market, the Acer and eMachines brands are pitted directly against one another, which could mean doing away with the eMachines name, Baker said. However, eMachines has been positioned for retail and Gateway for direct sales, Shim pointed out. Gartner's Smulders expects Acer to divest the combined company from the professional segment of the business and focus squarely on retail.

Either way, Acer will need to identify the key strengths of the Gateway brand and clearly communicate those to buyers. Though Gateway is a known name--and has that recognizable cow-print logo--what exactly the name means to customers is hazy.

"Very few understand what it stands for," Smulders said. "They need to establish what the focus of the brand really is, whether it's great service and support, whether it's leading technology or the center of your digital home. (Acer) has to find ways to differentiate the brand and stand out from the rest of the pack."

Gateway: From PC powerhouse to buyout bargain

ews analysis Taiwan is a long way from Iowa.

But not as long as the distance that Gateway--the farm-raised, direct-sales PC company that grew into a major force in the U.S. computer industry--has traveled over the past two decades.

When Acer agreed on Monday to purchase the American PC maker, it wasn't shocking, since more than a few pundits would say Gateway's acquisition has been several years overdue. But at a $710 million purchase price, it's a comedown for a company that in 1997 was offered $7 billion to become part of Compaq Computer (which was eventually acquired by Hewlett-Packard).

A string of bad quarters, a revolving door into the chief executive's office and a schizophrenic business strategy have all led to Gateway's end as an independent company after 22 years in business.

The economic downturn that began in 2000 hit Gateway particularly hard, and it never quite recovered. Its identity as a company was constantly in flux after that, expanding through retail stores, delving in the world of consumer electronics, and acquiring low-end PC maker eMachines. But none of the new strategies quite worked.
"Gateway's basically been up on eBay for the last couple years."
--Samir Bhavnani,
analyst, Current Analysis

Now it will be up to Acer, a Taiwanese company, to resuscitate Gateway's heartland image and compete with the PC industry's dueling giants, HP and Dell.

To people who've watched Gateway's aimless adventures of the last few years, the new and focused management that will be at the helm is probably a good thing, and a long time coming. "Gateway's basically been up on eBay for the last couple years," said Samir Bhavnani, analyst at Current Analysis.

Founded in 1985, the company was built on a direct-sales model--a la Dell--which was initially very successful. Gateway grew 20 percent to 30 percent from quarter to quarter at its peak in the 1990s, making it the Acer of its day--the fastest-growing PC maker at the time.

In 1997, founder and CEO Ted Waitt rejected a proposed merger with Compaq, a deal that would have made Gateway the consumer arm of the world's largest PC operation at the time. After turning Compaq down, Gateway moved into software and services, financing and Internet connections.

But it wasn't as adept at selling its PCs in cow-print boxes directly to business. In 1999, Waitt resigned, and Jeff Weitzen took over as CEO. Then, in 2000, a steep decline in demand hit the PC industry.

Gateway's shipments dropped off quickly. The company went from moving 4.2 million units that year to 3.2 million in 2001, to 2.7 million in 2002, then to finally bottoming out at 1.9 million in 2003, according to data compiled by IDC.

Then an economic recession hit. Things got worse.

In 2002, Gateway began stocking its Gateway Country Stores--which were formerly just places for customers to place orders--with a variety of consumer electronics, such as cameras, video recorders and most notably, plasma televisions. The company made a huge splash in the nascent plasma business by undercutting other vendors by hundreds of dollars. The strategy was applauded at the time, but it was a bust.

"At one time, it was really focused on selling televisions and made a pretty big bet on the digital home...HP and Dell placed similarly large bets, but they also kept the focus on their PC business," said John Spooner, an analyst at Technology Business Research.

Switching gears, the company scooped up eMachines, a low-end PC maker, in 2004. By then, Gateway had lost much of its luster, and much of the leadership from the much-smaller eMachines was brought in to run the company.

"In reality, it seemed like eMachines was taking over Gateway, with its management structure, the way they marketed themselves and priced themselves," Bhavnani said. eMachines Chief Executive Wayne Inouye moved over to run Gateway, and seven of 13 of the senior vice presidents appointed after the merger also hailed from eMachines.

Later that year, the newly combined company announced that it would begin closing its retail stores, which also meant cutting more than a third of Gateway's workforce. It was then that Gateway began cropping up on retail shelves, and TVs and other consumer electronics were cut out of the picture to focus better on its core business, PCs.

Inouye left the company in 2006, and Chairman Rick Snyder stepped in as interim CEO. Later that year, J. Edward Coleman became the company's fifth chief executive in six years.

Finally, the company got back to doing what it does best--building PCs. By then, it was worth a tenth of its peak value. But there's still that brand, the biggest reason Acer wants the company. Acer will need it to compete in the U.S. market with Dell and HP.

"Who doesn't like the spotted dots, the cows, what they stood for, seeing (founder) Ted Waitt in the commercials with the pickup trucks?" Bhavnani asked. "It's a company that people rooted for."

HP gets in the game with Blackbird

Hewlett-Packard is looking to cast a spell on the PC gaming industry with its first product developed with Voodoo PC.

The HP Blackbird 002 is the first joint effort with Voodoo, the Canadian enthusiast PC maker that HP purchased a year ago. HP is expected to unveil the souped-up PC at a special event in New York on Wednesday evening.

The Blackbird is an all-black, all-aluminum gaming machine that can be configured however the customer wants. The BIOS (basic input-output system) is completely open, and none of the inner components are proprietary, meaning the customer can buy replacement parts off the shelf of any PC supply store.

The shape of the machine should catch some eyes too--the chassis hovers on an aluminum foot. Though it's a flashy design, it's actually a utilitarian measure: it's a sixth side of the box for air to flow out of, which helps combat one of the biggest problems with enthusiast PCs--overheating. The Blackbird also uses a full liquid-cooling system and isolates each of the PC's heat sources in their own thermal chambers to further reduce the temperature output.

The Blackbird is a bold first move from HP, as it takes a step into the ring with other high-end PC makers, particularly Dell, which has the popular XPS line and scooped up Alienware earlier last year.

The gaming market has ballooned in recent years. The worldwide market for PC gaming-influenced hardware purchases will produce $10 billion in revenue annually by the end of 2007, according to Ted Pollak, senior game industry analyst for Jon Peddie Research.

In a computing niche that leans heavily on design, the Blackbird shows careful attention was paid to detail both inside and out, industry observers say.
Photos: HP's Blackbird sings a gaming tune

"Inside, very few products have that level of fit and finish--polished metal and solid aluminum is typically something you see in a high-end automobile--even than you'd see in the most expensive gaming PCs," said Rob Enderle, principal analyst at the Enderle Group. "This approach is at the Lexus (or) Mercedes quality level and build level."

The car analogy is actually quite germane. The outer aluminum casing for the Blackbird is made by a Chinese manufacturer whose specialty isn't consumer electronics or computers, but car doors.

Then, each is configured top to bottom in Voodoo's newly expanded Calgary production facility by the same engineer, said Mark Solomon, HP Gaming's creative director. But you don't have to be a mechanic or even nominally adept with the contents of a toolbox to swap out parts and make your own upgrades. Blackbird is intentionally designed so that any of the components--CPU, GPU, hard drive, optical drive--can be swapped out.

HP hopes that touches like these will lure creative and gaming types with plenty to shell out on a custom performance PC. Priced between $2,500 and $6,500 depending on the configuration, it's firmly within the company of other high-end performance PCs.

"The pricing is pretty aggressive at the lower end for an elite system," Pollak said. "It's surprisingly affordable."

For a certain segment of the market anyway. But paying up to five figures for a gaming machine is not unusual in this relatively small segment of the overall PC market, where the margins are considerably higher. So HP is putting a lot of resources into the performance and the aesthetics. The design and manufacture process is much pricier than the average HP notebook or desktop PC.