Gateway aims high with ALR purchase

Vendor adds to high-end portfolio and enters indirect sector with acquisition of server manufacturer after profit warning

Direct PC vendor Gateway 2000 is to acquire server manufacturer Advanced Logic Research (ALR) for $194 million to boost its high-end portfolio.

The acquisition follows hot on the heels of a profit warning issued by Gateway. The company blamed a downturn in demand in the PC market after it stated that profits for the second quarter, ended 27 June, will be similar to its first quarter?s levels.

In its first quarter, Gateway achieved a turnover of $1.42 billion and net profit of $51 million.

Gateway chairman Ted Waite stated last week that sales picked up late in the quarter and that operating expenses were higher than expected ?as a result of investments to provide support for the anticipated strong sales in the second half of the year?.

Rumours had surfaced at the beginning of June at the time of Intel?s profit warning, that Gateway was to preview its second quarter performance, but the vendor denied the suggestions.

Industry attention has turned towards Gateway?s strategy for attacking Compaq at the high end of the server market. The direct seller referred to the ALR acquisition as ?the one card missing from the pack?.

Manny Pinon, sales and marketing manager at ALR?s UK distributor, Norwood Adam, said the company had received confirmation from ALR that it will operate as a wholly owned subsidiary of Gateway and that both brand and channel will remain intact.

?The combination of direct and indirect channels suits it [Gateway] down to the ground. It is now playing in both areas in almost a role reversal of what Compaq was trying to do. If Gateway does decide to take its PCs indirect, it can now easily do so,? said Pinon.

When the deal goes through, Gateway expects to incur an exceptional, noncash charge for the write-off of ALR?s R&D in process.