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8/22/2006
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Major Investors Press Gateway To Makes Some Changes

Firebrand Partners and Harbinger Capital Partners sent a letter to the PC maker calling for the company to invest in beefing up its brand and said they plan a face-to-face meeting with Gateway's management. That letter was filed with the Securities and Exchange Commission on Monday.

A major Gateway investor is pressing the computer hardware company to spend more to beef up its brand and focus on its core strengths.

Scott Galloway, who's part of a group of investors urging Gateway management to start making some changes, told CRN Tuesday that a face-to-face meeting with company executives was "imminent." He said the advice to Gateway would entail "broad strokes" and that he thinks "they need to invest more in their brand and design."

Galloway sent a letter calling for the changes to Gateway on behalf of his investment firm, New York-based Firebrand Partners, and another entity, Harbinger Capital Partners. The letter was filed with the Securities and Exchange Commission on Monday.

The letter, to Gateway Chairman and Interim CEO Richard Snyder, said the investors combined now own more than 10 percent of Gateway and they want to share some of their thoughts about how to strengthen the Irvine, Calif.-based company.

"The motivation for our investment in Gateway can be distilled to one simple thesis: There is nothing wrong with Gateway that can't be fixed with what's right with Gateway," Galloway wrote. "We believe that the firm's brand equity, heritage of innovation and retail channel strength position the firm to be a leader in the evolution toward design-driven, user-friendly, media-facile PCs."

Gateway and rival Dell both grew their businesses in the 1990s via a direct-sales model and by bypassing resellers. But as Gateway has looked to tap into the U.S. commercial market, it has begun to engage more resellers and solution providers. When the company merged with eMachines in 2004, it also began selling systems through the consumer retail channel.

That hybrid sales approach is the correct one, according to Galloway. "Direct is still viable, but the optimal strategy is to have all three channels, which Gateway has," he told CRN.

Gateway's stock has hovered at $1.50 to $1.60 per share for the past several months, and the investor group led by Galloway bought shares at between $1.30 and $1.60 in a series of purchases made largely since early this year. Through mid-day trading Tuesday, Gateway shares were at $1.70, up 17 cents.

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