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A BARE-BONES BOX FOR BUSINESS

For most of his company's 12-year history, Chairman and CEO Theodore W. Waitt has kept Gateway 2000 Inc. on the cutting edge. In 1993, when leading PC makers hedged their bets by designing only a few models using Intel Corp.'s new Pentium chip, Ted Waitt went whole hog, building all Gateway computers around the speedy new chip. The next year, Waitt was the first to make CD-ROMs standard in all his computers. And in 1996, the mail-order company pioneered a PC/TV combo for the digitally inclined couch potato.

Now, Waitt is about to stick his neck out again. On May 21, Gateway will unveil the computer industry's first NetPC. This new class of computer, based on a design by Microsoft, Intel, Dell, and Compaq, is a bare-essentials machine aimed at the price-sensitive corporate buyer. Gateway's Model E-1000, code-named Tomahawk, costs less than $1,000, without a monitor but sporting a 133-Mhz Pentium chip, 16 MB of memory, a 1-gigabyte hard disk, and a fast network connection. ''This is going to be great for the corporate market,'' crows William G. Shea, Gateway's vice-president for major accounts.

BARGAIN BASEMENT. It had better be. Gateway is banking on being ahead of the pack to boost its weak standing in major corporations. But the company will not be alone for long. Later this year, PC makers such as Compaq, IBM, Dell, and Hewlett-Packard will introduce their own NetPCs. ''We see this as a natural extension of our PC lines,'' says Rod Adkins, general manager of IBM's commercial PC offerings.

The NetPC sales pitch: They're cheaper and you can run Windows software just as you do on today's PCs. That sets them apart from rival ''network computers,'' or NCs, being pushed by Sun Microsystems Inc. and Oracle Corp. NCs also run Windows programs and boast bargain-basement prices--some as low as $750 without a monitor--but most do not include a disk drive, relying instead on a server for applications and files. John Filiberti, a Merrill Lynch & Co. vice-president who has had an early peek at the new Gateway machine, is sold. ''With such low prices,'' he says, ''that would allow me to go in to my managers every year or so and say I need new machines.''

That's just what Waitt wants to hear. But he may not like what others are saying--they're still too costly. According to the Gartner Group Inc., major companies spend on average nearly $10,000 a year per PC, including the cost of support and maintenance. That can be cut by up to 39% using NCs, but only 26% when NetPCs are the computer of choice, says Gartner. ''The NetPC doesn't offer more than I've got,'' says Glen Salow, chief information officer at Aetna Retirement Services Inc., in Hartford. Salow says that as many as 1,200 of the PCs in his operation--over half--will be replaced by NCs early next year.

That's why Microsoft is backpedaling. After ridiculing the idea of NCs for months, on May 12 the software giant disclosed a licensing agreement with Citrix Systems Inc. and France's Prologue for technology similar to what is offered by the NC crowd. Says Microsoft Group Vice-President Paul A. Maritz: ''This is not a black/white thing.''

Not when you've got a foot in each camp.
By Ira Sager in New York, with Peter Elstrom in North Sioux City, S.D.


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Updated June 15, 1997 by bwwebmaster
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