Acer finds a Gateway to the U.S. PC Market

Acer on recently announced plans to acquire Gateway for $710 million or $1.90 for each Gateway share. The deal has been approved by the boards of both companies and the acquisition is expected to close in December.

The benefits of this acquisition are:

  1. Wider Distribution Channel: With this acquisition, Acer, Taiwanese company, will overtake Lenovo in market share and become the world’s No. 3 PC-maker, and gets a long-desired foothold in the U.S. consumer marker because Gateway is the No. 4 PC maker in the United States, behind Dell, Hewlett-Packard, and Apple. Acer has traditionally been strongest in Asia and has recently made strides in Europe.
  2. Broader Marketing Strategy: Acer will use a multi-tier strategy, much like Hewlett-Packard two-tier strategy of selling PCs under the HP and Compaq brand names. Acer-Gateway will have almost an ideal combination of brands with eMachines for low-cost desktops, Acer for low-cost notebooks, Gateway for midrange desktop and notebooks, and Ferrari for high-end notebooks.
  3. Better Supply-chain leverage: With its bigger size, Acer will be able to get better deals from its suppliers as well as optimize its supply-chain and optimize its product plants.
  4. Keep Lenovo in check: Lenovo has been coveting an entrance into the European PC market. With the entrance into the U.S. market, Acer will be able to keep Lenovo in check in the European market. Gateway has a strange arrangement where Gateway can buy Packard-Bell who is strong in the European market. With the acquisition of Gateway, Acer has the opportunity to acquire Packard-Bell and prevent Lenovo from a entering the European market by acquiring Packard-Bell.

Even as the Acer-Gateway combination creates a more formidable competitor, the reduction of a competitor should be a boon for all the PC makers. Ultimately, this should improve Acer’s profitability, through increased revenues as well as better leveraged costs.