Acer's Gateway Purchase

Deal for $710 Million
Adds to Heft in U.S.;
Threat to H-P, Dell
By JASON DEAN and LORETTA CHAO
August 27, 2007 2:06 p.m.

BEIJING -- Acer Inc.'s acquisition of Gateway Inc. for $710 million highlights the intensifying consolidation in the personal-computer business and strengthens an already fast-growing competitor against industry leaders Hewlett-Packard Co. and Dell Inc. in their home market.

The deal, announced Monday, will put Taiwan-based Acer firmly in the No. 3 spot in global PC market share by unit shipments, supplanting Lenovo Group Ltd., which itself vaulted into the global top tier two years ago by purchasing the PC operations of International Business Machines Corp. The Gateway acquisition marks a major though potentially risky step for Acer, a company that once manufactured PCs for big-name Western brands and is now buying one.

Under terms of the agreement, Acer will launch a cash tender offer for all outstanding shares of Gateway, Irvine, California, for $1.90 a share, a 57% premium to the closing price of Gateway's shares on the New York Stock Exchange Friday. The companies said the deal has been approved unanimously by the boards of both companies and is expected to close by December.
PC PLAYERS SCORECARD

The combination of Acer, Gateway and Packard Bell would form a company with about 10% of the U.S. market.
Global PC Shipments U.S. Market Share Annual Revenue (in billions)
Dell 39.1 million 27.3% $57.1
H-P 38.8 million 23.6% $91.66
Lenovo 16.6 million 3.9% $14.6
Acer 13.6 million 4.8% $11.32
Gateway 5.0 million 6.3% $3.98
Packard Bell 841,235 NA NA
Source: IDC, WSJ.com research
Annual 2006 world-wide shipments. U.S. market share as of June 2007. Lenovo revenue for fiscal year ended March 31, 2007; H-P revenue for fiscal year ended Oct. 31, 2006; Dell revenue for fiscal year ended Feb. 2, 2007

The union with Gateway gives Acer needed heft in an industry increasingly dominated by its top few players. The combined company would have had total revenue of more than $15 billion for 2006 and expects to ship about 25 million PCs this year, executives said. By selling itself, Gateway, long one of the best-known PC names in the U.S., admits defeat in its effort to battle larger U.S. rivals -- though Acer executives said they will continue to use the Gateway brand.

"Scale has never been more important" in the PC industry, Acer Chairman J.T. Wang said on a conference call. "And this transaction provides [us] the scale to compete in today's global market."

Owning Gateway will substantially increase Acer's foothold in the U.S., a market long dominated by Dell and H-P but where Acer has been making headway selling its laptop PCs through big retail chains such as Best Buy Co. If the deal closes, Acer will become the No. 3 U.S. PC company by unit shipments, far larger than Apple Inc., which would become the No. 4 U.S. player. Acer and Gateway together held about a 10.8% share of the U.S. PC market in the second quarter, nearly half the 23.6% share of second-ranked H-P, according to preliminary estimates by market-research firm IDC. Dell's share was 28.4%.

The tie-up could involve a double blow to Lenovo, one of China's best-known companies, which has been battling with Acer for the global market's No. 3 spot all year. Lenovo disclosed earlier this month that it was in talks to buy a stake in Packard Bell BV, a PC maker based in the Netherlands. That deal was aimed at giving Lenovo a leg up in the European consumer market, where Acer is especially strong.

But in a separate statement issued just before Monday's merger announcement, Gateway appeared to throw cold water on those talks, saying that it intends to exercise a "right of first refusal" to acquire all the shares of Packard Bell's parent company. Gateway said it acquired that right in June 2006 from John Hui, the Chinese-American businessman who owns Packard Bell and who sold eMachines to Gateway in 2004. Gateway said it had received a notice from Mr. Hui offering to sell all the shares of Packard Bell's parent company to Gateway at a price "based on an offer received by Mr. Hui from a third party." It is unclear what that price would be.

A Lenovo representative says it remains interested in acquiring Packard Bell. A representative for Packard Bell didn't immediately respond to requests for comment.

The deal occurs at a time of major change in the U.S. PC market, as growth in business purchases of desktop PCs has slowed and consumer purchases, largely of laptops, have become more important. That shift is giving retailers much more clout in the industry because many consumers prefer to see and feel products before they buy them. Acer's focus on retail sales has helped it grow rapidly in the U.S. in recent years, a trend analysts said the Gateway acquisition could accelerate.

"I think this changes the global market," said Tracy Tsai, a Taipei-based analyst at research firm Gartner Inc. Other top PC vendors have already "noticed that Acer is moving quickly up the ranks, and it's forcing them to be more aggressive in holding on to their market share."

Analysts say Gateway had been looking for a buyer in the face of declining U.S. sales. The company has faced stiff competition in the past year from a re-energized H-P and pricing battles that have reduced margins across the industry. "Gateway was kind of a sinking ship," says Doug Bell, an analyst with IDC in Framingham, Massachusetts.

The Gateway union will bring new challenges to Acer, which has engineered a remarkable turnaround since hiving off its contract-manufacturing operations in 2000 to focus on its own brand. It will have to manage three brands -- eMachines in addition to its own name and Gateway, which could dramatically increase the complexity of its operations. Retailers may want to condense the shelf space they allot to the three brands, for example, when they are all owned by one company.

Acer's Mr. Wang acknowledged that the multibrand move is a "major change in corporate strategy" but said the strategy would be a strength, enabling the company to better target different segments of the consumer market.

Acer has been plotting an acquisition for about a year. Mr. Wang, the chairman, first disclosed the company's intention to do a deal in a March interview with The Wall Street Journal, although at the time he didn't disclose any possible targets. Mr. Wang said Monday that Acer and Gateway have been in contact for some time but that serious discussions about the merger began about six weeks ago.

Executives said they expect the union to save the combined company about $150 million next year, by giving it better purchasing power for components and by cost cuts through combining parts of overlapping operations such as customer services.

Gateway has been trying to sell its unit that sells PCs to businesses. Executives said that effort will continue and that its success or failure won't affect whether the Acer deal happens. Separately Monday, Acer reported a decline in net profit for the most recent quarter but said sales and operating profit grew sharply. Acer said its consolidated revenue, including subsidiaries, rose 28% to 93.52 billion New Taiwan dollars (US$2.84 billion) in the three months through June, from NT$72.86 billion in the same period a year ago. Net profit fell 36% to NT$1.98 billion from NT$3.08 billion.

Acer didn't explain the decline in earnings, but its profit figures are frequently influenced by disposals of its considerable holdings in affiliates. For that reason, Acer's operating profit often provides a better measure to compare performance of its core business. In the latest quarter, operating profit rose 29% to NT$1.96 billion from NT$1.52 billion.

Acer had NT$44.69 billion in cash and cash equivalents on its balance sheet at the end of 2006.

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Paramount, Dreamworks abandon Blu-ray .

Paramount, Dreamworks abandon Blu-ray.

Viacom's Paramount Pictures and DreamWorks Animation SKG will release their next-generation DVD titles exclusively on HD DVD ahead of what they say could be the biggest holiday season ever for DVDs.

Paramount had sold titles in both the new high-definition formats - HD DVD and Blu-Ray - but settled exclusively on HD DVD after deciding that it offered better quality, lower-priced players and lower manufacturing costs, Kelley Avery, president of Paramount Home Entertainment, told Reuters.

"This has been the biggest summer on record for movies, it will be the biggest fourth quarter for popular movies for consumers," Avery said. "At the same time, we have HD DVD players that are truly affordable."

HD DVD and Blu-Ray are waging a battle to dominate the next generation of DVD players that promise better pictures, sound and in some cases more content in the multibillion-dollar home-entertainment arena.

So far, most of the major Hollywood studios are selling Blu-Ray titles, and HD DVD sales have lagged. But some HD DVD supporters hope to broaden their appeal to consumers based on cost. The lowest-priced, stand-alone HD DVD player sells for $US299, compared with $US499 for the lowest-cost Blu-Ray option.

Paramount's first releases under the exclusive HD DVD program include Blades of Glory on August 28, and the summer blockbusters Transformers and Shrek the Third, due for release later this (northern hemisphere) autumn.

DreamWorks Animation, maker of the blockbuster Shrek animated movie franchise, had not committed exclusively to either high-definition format but was swayed to HD DVD by the lower-cost player, DreamWorks Animation Chief Executive Officer Jeffrey Katzenberg said.

"They have a high-quality consumer experience that is now being offered at a price point that we believe is going to connect with the consumer," Katzenberg told Reuters.

Katzenberg said timing also played a part, with the holiday season "sure to be the biggest quarter in the history of the home-video market" and consumers facing the 2009 switch to a high-definition broadcast signal.

"This seems to us to be the right product at the right price at the right time," Katzenberg said. He added that sales for high-definition discs were much too small to declare either format dominant.

DreamWorks Animation titles are distributed on home video and DVD by Paramount.

The exclusive agreement does not include movies directed by Steven Spielberg for DreamWorks SKG, a Paramount unit. It does include all other movies distributed by Paramount, DreamWorks, Paramount Vantage, Nickelodeon Movies and MTV Films.

HD DVD was developed by Toshiba and backed by Microsoft and is supported by Warner Bros, Universal Studios, New Line Cinema, HBO and the Weinstein Co.

Blu-Ray discs use Sony-backed technology and are supported by most of the major US movie studios.

Both formats came on the market last year. Blu-Ray outsold HD DVD 2-to-1 in the United States in the first half of 2007. An estimated 3.7 million high-definition discs have been sold, overall, including 2.2 million in Blu-Ray and 1.5 million in HD DVD through July, according to Home Media Research.
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Google starts charging for extra storage.

Space shared between Picasa and Gmail runs $20 per year for 6GB more

Gregg Keizer (Computerworld) 13/08/2007 09:22:51

Just hours after Microsoft rolled out its Skydrive online storage service on Thursday, Google unveiled pricing for shared online storage available to both Gmail and Picasa, the search giant's Web-based e-mail and photo services, respectively.

The new storage space, which Google took pains to stress is in addition to the free allowance for each service (1GB for Picasa, 2.8GB for Gmail), is priced starting at US$20 a year for another 6GB. In the first 20 minutes after the paid storage debuted, however, Google sold the 6GB bump for just US$1 a year; that was quickly changed to US$20.

Other plans provide an extra 25GB for US$75 annually, 100GB for US$250, and 250GB for US$500.

In comparison, Microsoft's Windows Live Skydrive, which it relaunched Friday with interface changes and a name change from Live Folders, offers 500MB, about 18 percent of Gmail's free limit.

"When you reach the limit of free storage, consider this your overflow solution," said Ryan Aquino, a software engineer on Google's Picasa team, on Google's primary blog. Other Google products, like Docs and Spreadsheets, the company's offline applications, will be able to access the shared storage "soon," Aquino added.

At one time, Google touted an "Infinity+1" strategy for Gmail's online storage space, but later settled on the current 2.8GB.

In March, rival Yahoo announced unlimited storage for its Web mail service. However, Yahoo flags accounts that it thinks are being used for online storage, rather than simply storing e-mails.

Google was not available for comment Thursday night to answer questions about the $1-per-year offering -- typo or change of heart? -- or why it decided to abandon Infinity+1 and charge for storage.

More about Windows Live, Google, Microsoft, Infinity, Yahoo
Google to let users store Picasa Web Albums and Gmail for a fee
Google to let users store Picasa Web Albums and Gmail for a fee

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