Boston (CNN/Money) -
The theme of the vanquished becoming the vanquisher could become a familiar one in the world of tech.
The most famous example, of course, is the AOL-Time Warner merger. AOL "purchased" Time Warner (parent of Business2.com) only to see its name removed from the marquee in 2003, just two years after the deal was sealed.
A more recent example is Gateway Computers, which purchased eMachines last year and put eMachines CEO Wayne Inouye at the helm of the combined entity.
The assimilation of Gateway into eMachines became complete this week with the announcement of a new low-end PC line. The line's three products -- branded as eMachines T2824, T2958, and T3092 -- fit right in with eMachines's traditional focus on the lower end of the market: They will fetch just $399 to $599 after rebates.
They will be sold, as eMachines have long been, by most major tech retailers across the country. These three machines are among the first new units from the combined company.
"It's the product launch you look at to see if they got the merger right," says Rob Enderle, principal analyst with the Enderle Group. "This shows they're back up and running and open for business, which is important because in a merger, people forget the company has products and focus on the merger only. So far they haven't broken anything."
"People are looking for assurances that, since the merger, the product lines will stay competitive and focused and the quality of the good brands will remain the same," said Chuck May, VP for desktop product planning at Gateway. "It's also an important [launch] because we're getting into the back-to-school time frame and that's a big portion of our business."
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The product announcement comes just two weeks after another milestone for Gateway: an increase in its revenue guidance for the current quarter. On June 15 the company upped its estimate to between $860 million and $880 million, from $798 million.
Investors didn't push Gateway's stock up very much on the revenue bump or the new product news, and that's prescient.
Right now, the question for Gateway isn't how much more revenue it can bring in, but how much money can it make on these new low-end machines.
"Pre-eMachines, Gateway was only earning five or six points of margin on its PCs," says Charles Wolf, an analyst with Needham & Co. Considering that Gateway's average sale price the quarter before its eMachines acquisition was $1,006 -- a figure that dropped to $740 for this quarter -- it's clear that actual profit-margin growth is key to the company's continued viability.
In other words, Is Inouye's cost-slashing strategy going to work for Gateway the way it did for eMachines?
In just over three weeks, investors will get a great look at the company's turnaround strategy -- and its profit margins -- when it reports its next quarterly results. This will be the first Gateway quarterly report that includes a full three months of eMachines sales data.
And with Inouye driving Gateway's strategy, it'll be the first full quarter in which the vanquished is the vanquisher.
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