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Gateway Embraces Servers as a Way Out from Under

Gateway Embraces Servers as a Way Out from Under

The server has reportedly captured the imagination of Gateway's senior management, which is apparently counting on riding it like a magic carpet out of the morass that the company has gotten itself into.

As the Wall Street Journal observed two or three weeks ago, Gateway has been trading at two-thirds of the value of the $1.07 billion in cash it's got on its books. Not an easy pickle to get oneself into, even in this business. It will start burning through its cash horde to the tune of $50 million a quarter unless it turns things around.

It doesn't help that Gateway, under prodding by an SEC investigation, is now saying it'll have to restate 2000 and 2001 because it inflated its sales back then by a combined $470 million. It's the second time it's had to restate 2000, but apparently restating won't affect its bottom line. The revenues at issue revolve around the fees it got from and paid to AOL for bundling AOL subscriptions with its gear. It now thinks it shouldn't have recorded the total fees it got as revenues and should have deducted the money it paid AOL from those revenues rather than treat it as a cost of sales.

Anyway, a couple of months ago Gateway hired ex-Dell, ex-Penguin exec Scott Weinbrandt as VP and general manager of its new Systems and Networking Group. Weinbrandt is the genie who's supposed to transform Gateway's wispy server operation into an Arnold Schwartzenneger. Back in the old days, Weinbrandt was attached to Dell's nascent server operation, which he observes - thinking of Gateway and its idle purchase of ALR, for instance - didn't catch on until the third time through, as director of product marketing, before it became a glittery star - rising from next to nothing to $1.2 billion in 36 months. He went on to run Dell's North American sales.

Weinbrandt has divided the new Gateway group into four units in anticipation of fattening it up: to wit, entry and workgroups; departmental, enterprise and storage; system software and applications; and router-style networking.

The group is one of those paint-by-number canvases that Weinbrandt has to fill in. Gateway has no storage products yet, no relationships with operating system companies outside of Microsoft, no applications, no networking widgetry to speak of.

Weinbrandt wants to add both direct and network-attached storage in Q3 and round up programs such as VPN, web servers, caching, database and CRM. Talks with Intel are in train over the Itanium, though when such a creature might appear is unclear, though a four-way is a certainty.

He also wants to treat Linux as a standard rather than a custom install and isn't exactly looking forward to negotiating with Red Hat. But then no one does. Red Hat always makes in rough for some reason or another and its agreements apparently have an inordinate numbers of terms and conditions.

Weinbrandt, who was there when Dell's relationship with Red Hat started, cracks that cutting a deal with Microsoft is easier.

Gateway is ready with service and support - it's got service-dedicated folk - and has got the rest of the internal and external infrastructure necessary to make a serious play, Weinbrandt says. He figures Gateway's biggest problem is "awareness."

While the company works on its messaging, it has introduced two new rack-mounted servers, a 1U 955 that replaces its two-year-old 935 system and a 2U 975. Both are two-ways and Gateway can claim a momentary edge on Dell and Hewlett-Packard in coming up with a two-way 1U based on the 3.06GHz Xeon. The novelty won't last long; it is after all only a mildly worked-over Intel reference platform and the other companies are bound to follow, Weinbrandt said, adding that his have been "aggressively" priced at $1,699 and $2,199 respectively.

Gateway says 42 Gateway 955s can be stuffed in a 19-inch rack.

The widgets, which include dual integrated gigabit Ethernet network ports, 64-bit PCI-X technology and Ultra 320 SCSI hot-swap 10,000 RPM hard drives, will run Microsoft's Windows Server 2003.

The 955 can scale to three hot-swap drives, two PCI-X slots and up to 12GB of PC2100 ECC DDR memory. The 975 can accommodate seven hot-swap drives, six PCI-X expansion slots and optional redundant hot swap power supplies.

Weinbrandt swears Gateway won't try to turn into Dell II because of its emphasis on direct sales. Online and even Gateway's own stores will play only a minor sales role as far as its Systems and Networking Group goes. Still, like Dell, Weinbrandt says, server sales are very much a push-pull matter of piggybacking on accounts that already buy their notebooks and desktops from Gateway. Currently it does about 60% of its business with government, education, health care and corporates. Weinbrandt wants to make it 50%, with SMEs taking up the slack.

More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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