Gateway makes bid for storage buyers

The move could be an important step for the company, which derives more than 70 percent of its revenue from sales of PCs to U.S. consumers.

The San Diego-based company last week posted its second-straight quarterly loss in a less fertile U.S. PC market. After years of double-digit growth, U.S. PC sales declined 3.5 percent in the first quarter, according to Dataquest.

Gateway's storage step takes it into one of the hottest growth markets--and one rife with competitors. The PC maker unveiled three network-attached storage (NAS) devices under the GS 400 brand, targeted at small and medium-size businesses, primary and secondary schools, and state and local governments.

Technology Business Research analyst Brooks Gray believes the NAS products "could help Gateway bolster server sales." Gateway until now has been a bit player in the server market.

"Gateway is clearly making a statement--we are getting into the storage business for networks," said Gary Sanders, Gateway's product-marketing manager for advanced servers and storage. "It's obviously a growing field, and we don't want to miss out on that."

NAS systems are small storage devices, typically stacked in racks, that are attached to networks rather than to particular servers. Dataquest expects the market to grow to US$7.4 billion in 2004 from US$1.4 billion last year. The systems have been particularly popular with Internet service providers and businesses conducting e-commerce, as the storage is easy to set up and manage.

But Gateway moves into a crowded market, entrenched with competitors such as Dell Computer, EMC, Network Appliance and Snap Appliances.

The company believes its 299 U.S. Gateway Country stores could make the difference in reaching its targeted buyers.

"One of the things that differentiates us from competitors is that we do have the Country stores out there," Sanders said. Rather than view the storage products on the Web, potential buyers can go to the stores to review and test them, he added.

Gateway also has contracted with 200 local dealers--known in industry lingo as value-added resellers--to work with potential and existing customers. Among other things, they will provide free initial consultation.

The Country stores have emerged as one of Gateway's most valuable assets, which the company has used to drive high-margin services and training traffic.

"Gateway still needs to increase its field specialists," Gray said. "I don't think the resellers will be able to drive the business. They haven't been able to drive server sales. Gateway needs to ramp up the number of sales people, but that may be difficult given the company's financial situation."

Three models will be available in the GS 400 line. Model 140 will offer 40GB of storage, expandable to 160GB, for US$999. Model 260, at US$1,999, comes with 120GB of storage, expandable to 240GB. The top-of-the-line Model 460 comes with 240GB of storage for US$2,799.

Besides fitting into racks, the GS 400 comes with rubber feet so that the storage devices can be stacked one on top of another.

The 140 and 260 both are US$200 more than comparable products from Snap, but Sanders dismissed the price variance.

"The difference is those products are not expandable, as ours are," he said. "Our biggest differentiator is that we have front-loadable and removable drive modules in there."

"The removable disks are a big advantage in terms of serviceability," Gray said. He noted that when there are problems, Snap products must be returned for repair. "But in the case of a software problem, for example, you could pull the drive with your critical data before sending Gateway's storage device in to be fixed," he added.