Gateway's decision to review whether Dublin is the most attractive location for its European headquarters will surprise few people involved in the high-tech sector. The company employs 900 people in Clonshaugh, Dublin.
The computer manufacturer is undergoing a fundamental review of its business and is fighting for its survival against savage-cost cutting by larger competitors, such as Dell, another company with substantial operations, employing more 5,000 staff in the Republic.
Yesterday the firm announced two consecutive quarters of losses and has said it will do no better than break even for the rest of 2001.
Radical action is clearly required to address the severe downturn in fortunes and the company has acknowledged that further job cuts will be required from its 10,000 strong workforce worldwide.
The company's operating costs in the Republic are likely to come under close scrutiny in a corporate review which should be completed by the end of August.
Mr Mike Maloney, managing director of Gateway Ireland, told The Irish Times yesterday that costs had risen in the Irish economy throughout the past few years.
He also indicated that Gateway would embark on its review in a dispassionate manner. He highlighted that Gateway was a European-based business rather than an Irish one.
Gateway will assess whether its 900 staff in Dublin, 400 of whom are employed in lower skilled manufacturing jobs, could be filled by workers in lower wage economies.
The skills shortage has pushed wages in the high-tech sector in the Republic well beyond levels which Gateway would have expected to pay when it chose to locate in Dublin in 1993.
According to Mr Brendan Butler, director of ICT Ireland - an industry association representing the high-tech sector- there is little doubt there had been a decline in Ireland's competitiveness.
"Industries which are open to strong competition such as computers are quite vulnerable," says Mr Butler. "Wage drift is a clear problem as well as difficulties in infrastructure."
These were emphasised last October when IDA Ireland confirmed it had lost out on a major 1,000 job investment by a quoted US technology firm to Hungary.
The Central Bank has also warned that escalating wage inflation, coupled with a possible fall in the value of sterling, would impact negatively on companies' profit margins.
ICT Ireland recently described the decision to remove the ceiling on PRSI payments in the budget as a major "own goal". It is also calling on the Government to tackle inadequate infrastructure in the regions to boost the Republic's attractiveness for IT investment.
However, despite these problems the Republic has not been as badly affected by the technology slowdown as other European States and the US. The IDA estimates just 2,500 jobs have been lost since the start of the year.
However, Gateway's decision to review its operations is a clear sign that the downturn in the tech sector is now impacting strongly in Europe and will probably hit the Republic further.
Gateway announced a pre-tax loss of $9 million for the second quarter yesterday, but it was its dismal sales figures in the Europe which will cause most concern.
Gateway's European sales fell 46 per cent illustrating that the weakness in the US computer sector has now migrated to Europe.
Research group Gartner Dataquest said yesterday that second quarter sales would show the first negative growth in the global PC market since 1986.
Gartner estimates that Compaq, Gateway, Hewlett Packard, IBM, all of which have significant bases in the Republic, will report double digit declines in sales in sales of computers, mobile devices and servers in the second quarter.
Both analysts and major corporations such as Intel have said the visibility to predict an upturn in fortunes is extremely difficult at the moment.
And with few betting on a significant upturn before the middle of next year, other hi-tech firms may have to undertake major reviews of their business in the following few months.
