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  1. Technology
February 24, 1999


By CBR Staff Writer

By Nick Patience

Gateway Inc is establishing an all-purpose computer technology commerce web site with the help of veteran computer retailer NECX. To grease the wheels, Gateway has snapped up 20% of the web-based commerce arm of NECX for $21m in cash, with an option to buy the rest of the subsidiary, which it values at $105m in total. Gateway plans to expand its site at with NECX’s help, offering about 30,000 items within the next couple of days – some from Gateway and some from other vendors. The offerings will include networking hardware, printers and other peripherals. NECX gets about 50,000 visitors to its site each month and Gateway around 250,000 but Gateway says it wants NECX’s commerce engine as the basis of its site because of its experience in offering multi-branded products and, perhaps more to the point, it already has all the reseller deals in place with the other vendors. Gateway CEO Ted Waitt says he expects rival Dell Computer Corp to announce something similar in the very near future. Separately, Gateway is also creating an internal division to manage its YourWare financing program that enables customers to own a PC by paying for it over two years with the option of trading it in for a new system (05/28/98). Approximately $1bn in financing transactions were generated by YourWare last year and it expects double that total this year. Until now, Gateway has outsourced all the financing to MBNA America Bank, which offers prospective PC buyers interest rates starting at 14.9%. Gateway’s chief financial officer John Todd says the division signals that financing is becoming an important part of Gateway’s business and this will mean Gateway taking some of that financing operation in-house. The division will be headed by Bob Spears, VP of financial services, who reports to Todd. Privately-held NECX has been selling computer products, networking hardware and electronic components via the web, phone, fax and EDI in some form or another since 1980 and recorded total sales of $430m in 1998. Gateway is only buying a chunk of its web business, which it says has revenues of about $10m a month, which means Gateway is getting its stake pretty cheaply compared to Compaq Computer Corp’s recent purchase of for $220m, which has an annual run rate of just $12m. Gateway’s Todd told us later that this is a separate announcement from any future reseller agreements Gateway might sign with computer equipment vendors, but he would not comment on reports that Gateway was about to announce a reseller agreement with 3Com Corp for its hubs, switches, remote access and other products. Gateway has been an OEM partner of 3Com for some time. 3Com declined to comment on the reports. Gateway says it still has to finalize some of the back-end integration, however. For example, NECX is based in Peabody, Massachusetts whereas Gateway is now based in San Diego, California, so there are shipping coordination issues to resolve. The SpotShop site that NECX will manage for Gateway currently offers Gateway-branded gifts and clothes. Gateway says it will be tightly linked to its and web sites. The company did not disclose the cost of the warrants to acquire the other 80% of NECX’s web business. Gateway closed down $3.375 or 4.0% at $79.125.

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