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GATEWAY'S DESTINATION: YOUR LIVING ROOM

It's betting consumers are ready for its big-screen PC-TV

Theodore W. Waitt didn't get where he is by following the herd. Instead of setting up shop in Silicon Valley or some other high-tech enclave, he planted Gateway 2000 Inc. in cow country--North Sioux City, S.D. He ignored the stampede to mass-market electronic stores and stuck with mail-order sales. Waitt presides over the largest mail-order PC company in the U.S.--revenues jumped 37%, to $3.7 billion in 1995--but doesn't look the corporate mogul. With his hair pulled back in a ponytail, the 33-year-old entrepreneur greets visitors in jeans, an open-collar shirt, and cowboy boots.

So it should come as no surprise that just when the computer industry is buzzing about stripped-down, $500 PCs for cruising the Internet, Gateway is headed the other way. This spring, the company plans to start selling a deluxe, $4,000 home-entertainment setup built around a personal computer, a 31-inch TV, high-end sound and graphics capabilities, and a wireless keyboard.

Called Destination, the system is designed to bring computing into the living room. Families, says Waitt, will be able to play CD-ROM games or check out Web sites without crowding around a tiny monitor. ``We're creating a new category of product,'' he says. ``We think there's a huge market for this.'' Technology gurus are impressed. ``It's a hell of a concept,'' says Kimball Brown, an analyst at Dataquest Inc.

But will it sell? ``I don't know that we've reached the point of having a computer in the living room,'' says Paul Kandel, senior sector manager at Dreyfus Corp., one of Gateway's largest shareholders. He worries about the company losing focus.

PITFALLS. Destination is not the first TV-PC combo. There have been TV tuner cards that let PCs show broadcasts in a small window. Apple Computer Inc. brought out the Mac TV in 1994, but it never entered mass production. Destination surpasses those machines by marrying a conventional TV screen to computer graphics technology, which results in crisper resolution than a standard TV.

The PC-TV could pose unprecedented challenges for Gateway. This is the first time the agile PC cloner has pioneered a new market segment. And, Waitt concedes, Destination may force Gateway to move beyond mail order. Destination will be offered through the direct-sales system, but Waitt says he's also talking to retail chains, including Best Buy and Elek-Tek, about carrying the hybrid PC.

Gateway is painfully aware of the pitfalls. Archrival Dell Computer Corp. tried selling home PCs in mass-merchandise stores in the early 1990s--only to retreat in 1994, when mounting store inventories contributed to a $35.9 million loss. ``We found the key advantages of our business model did not apply in the retail channel,'' says Tom Martin, Dell's vice-president for marketing.

That's a lesson Waitt is taking to heart. He points out that any deal with retailers will be only to sell Destination--not PCs. ``We don't want to screw up our fundamental model,'' he says. In other words, Destination may not be destiny.

BY PETER ELSTROM IN NORTH SIOUX CITY, S.D.


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Updated June 14, 1997 by bwwebmaster
Copyright 1996, Bloomberg L.P.
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