Gateway 2006 Annual Report

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annual RepoRt

06

To our Stockholders, Employees and Partners Worldwide,

Since joining Gateway last September, I have met with a wide array of stakeholders, including many of you, in order to better understand our business. I have come away from those meetings tremendously impressed by the degree of passion so many havefor Gateway and encouraged by the overwhelming desire to see us win in the marketplace, both inside and outside the company.At the same time, I have been working closely with the senior management team and our board of directors, reviewing in detail thedifferent elements of our business with the goal of identifying key strengths we can build on and important areas where we must,and can, improve.After taking stock of the current state of our business – from product R&D and supply-chain management to customer care,segment strategy and everything in between – I believe Gateway has a bright future. But that depends upon improving overallexecution while at the same time providing product leadership and service excellence that can be consistently and predictablymeasured in today’s competitive and rapidly evolving worldwide PC market.During our fourth quarter earnings call in February, I first introduced some changes to our strategic direction that I believewill enable us to better compete and succeed.First, in looking closely at all aspects of our business, it is apparent that we have not been as efficient as we need to be, given our performance and that of our competition. To that end, we have identified and acted on opportunities for significant expensereductions in 2007. We will continue to look for additional ways to improve our expense structure.Second, we must improve the quality of our operational processes and reduce the complexity of our business. Poor execution,and the incremental costs incurred to make up for it, is a significant drag on our financial performance.One area that I believe will make an important difference for us is the recent implementation of a new Oracle ERP system insupport of our Worldwide Retail business. This new system, which features cutting-edge automation and tools, will driveincreased discipline and efficiency throughout our business. In addition, we have made significant investments in our web platform that are already contributing to a better online experience while also giving us greater insight into the buying behaviorsof key segments of our customer base.While these new systems will help, they are not sufficient on their own. That is why we are also implementing a broader-based process improvement initiative to address other key opportunities for better execution that I believe will make us more efficientand improve customer satisfaction.Reducing our expense structure and improving process execution are important because they clear the path for us to build asuccessful future based on Gateway’s unique strengths.And what are those strengths? First of all, it is our brand. With 95% aided awareness, Gateway is one of the most recognizedconsumer brands among technology companies. And it is a brand with a great reservoir of good will.This brand strength translates into Gateway having 14.5% of the consumer PC market in the U.S. in 2006, adding 1.5 points of share for the year. And our share of consumer purchases through the Retail channel is even higher, with more than 21% marketshare in the U.S. and solid growth in our international markets. This strong presence in the consumer market is a foundation for near term product sales, including our award-winning line of PCs and industry-leading displays, but perhaps more importantly, itis a platform for delivering the next generation of products that will give consumers exciting new ways to experience technologyat home and work. We will bring these new solutions to market by leveraging our long history of success in consumer innovation as well as our relationships with key partners. We see these same opportunities for growth with our internationalretail partners as well, and are exploring opportunities to grow our worldwide retail network in 2007.Gateway’s second major strength is our track record for product innovation. One of the things that has struck me most since joining Gateway is the enthusiasm in the market and in the press when we introduce an industry-leading product, like the FX530high performance desktop or our 24-inch display. Critics immediately become fans, and reignite the power of the Gateway brand.Delivering innovative products to our customers is crucial to our success. In 2007 we will dedicate additional resources to ensureour product leadership continues.Our third unique strength is consumer channels, particularly the relationships we have with our retail partners. The quality of these relationships is a critical asset that we constantly nurture and work to improve. By working harder than anyone else in theindustry, we believe that we can play an integral role in helping our retail partners grow.And in addition to our retail partners, Gateway’s long-standing Consumer Direct channel gives customers the necessaryflexibility to find, research and buy our products whether their preferred shopping experience is to buy at a retailer, or to shopfrom their home or office. Our multi-channel approach enables customers to interact with us in a variety of ways depending ontheir own needs.