Gateway in Sun, OfficeMax Deals

SAN DIEGO — Gateway Inc., the No. 2 direct seller of personal computers, on Wednesday unveiled alliances with Sun Microsystems Inc. and OfficeMax Inc. to boost PC sales and said it expects revenue to more than triple to $30 billion by 2004.

In response, Gateway’s shares jumped $10.56, or 18%, to close at $67.75 on the New York Stock Exchange.

Under the Sun alliance, the Palo Alto-based company will sell Gateway’s PCs to corporations, giving Gateway a means to boost its sales in the business market. Gateway, which has more than 240 of its own Gateway Country outlets, also plans to open 1,000 boutiques in OfficeMax stores to further extend its consumer reach.

Gateway is looking for ways to make up for falling prices and components shortages in the PC market, which reduced fourth-quarter earnings. The San Diego-based company is targeting the more lucrative corporate market and offering services such as Internet hookups and leasing to boost profit.

“We’ve gone past the Golden Age in PCs,” said Tom Rhinelander, an analyst at market researcher Forrester Research Inc. “The margins have been slipping for some time.”

Gateway, which met with financial analysts Wednesday, forecast that its profit from products and services other than computers will rise to 40% of its total by the end of this year, up from a previous forecast of 30%. Gateway had $8.65 billion in sales last year and got more than 20% of its operating income from non-PC products. About 60% of the company’s sales come from consumers.

“They need the corporate market desperately,” said Ashok Kumar, a U.S. Bancorp Piper Jaffray analyst who rates Gateway a “buy.”

Corporate PCs are more profitable than consumer machines, which in many cases sell for less than $1,000. Consumers are most concerned with price and may not buy machines with the most advanced technology.

Still, Kumar said, he’s skeptical that Sun and Gateway will be able to persuade large corporations to buy Gateway PCs instead of machines from rivals Dell Computer Corp. or Compaq Computer Corp., whose strongholds are in the business PC market.

Gateway will invest $50 million in OfficeMax convertible preferred stock. The company said $20 million will convert into common stock in OfficeMax.com. Gateway will rent the space inside OfficeMax, the third-largest U.S. seller of office supplies, and will become the sole PC vendor in those stores.

Sun sells powerful computers and servers that run Internet sites. Gateway will be the exclusive provider of desktop PCs and portables for Sun customers through June 2001. Sun’s sales force will push Gateway products, and Gateway can establish a direct relationship with the Sun customers after six months.

Sun Microsystems shares rose $6.63 to close at $94.63 on Nasdaq. Shares in OfficeMax, based in Shaker Heights, Ohio, rose $1.06 to close at $7.06 on the NYSE.

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New Bull Run?

Gateway Inc.’s shares soared on Wednesday, though they remain well below their 52-week high of $84. Monthly closes and latest on NYSE:

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Wednesday: $67.75, up $10.56