There's a popular argument among technology bulls that the IT buildout among U.S. corporations is inexorable. Companies simply can't afford to stop buying new routers, servers and PCs if they hope to remain competitive, the thinking goes -- regardless of what happens in the business cycle.

But no one is making the same argument about consumers. And with the

Fed having just laid another 50

basis points on the

federal funds rate in its continuing

jihad

against excess demand, some PC bears are turning their sights on

Gateway

(GTW)

as a boxmaker whose heavy exposure to the consumer market could make it vulnerable to an economic slowdown.

Outside the Box

Gateway touts its lending activity as an integral part of its "beyond the box" strategy, and would be the first to admit that it has gotten increasingly aggressive since it began its

Your:)Ware

program in 1998. Gateway provided about $1 billion in financing to customers that first year, all through partner

MBNA America Bank

, a subsidiary of

MBNA

(KRB)

. That total grew to about $1.8 billion last year as Gateway formed additional partnerships with

Associates First Capital

(AFS)

and

Household International

(HI) - Get Report

. This year, CFO John Todd says he expects the company and its partners to do a sizable $3 billion in financing, with Gateway originating about 20% of that figure, or $600 million, on its own.

Milking It
Gateway outperforms rivals over a year

Source: BigCharts

Though the company doesn't disclose how much of its sales are tied to financing, Todd says that "it's one of the fastest-growing parts" of Gateway's strategy.

It's easy to see why. Much as

General Electric

(GE) - Get Report

found in the '20s, financing allows Gateway to bring new consumers into its market. Many consumers, leery of the speed at which a $1,200 PC becomes obsolete (and especially those who just don't have cash to make the purchase in the first place), find the notion of monthly payments of roughly $30 to $40 very attractive, despite exorbitant interest rates. (Gateway says the interest rates on its leases average around 20%.) Above all, says Todd, financing allows Gateway to better track, and therefore retain, its customers.

Slowdown Talk

The consumer has thus far been a strong point for Gateway, whose shares have outperformed those of rivals over the last year as economic growth has continued to boom. But that could change if consumer spending slows significantly. Gateway's ability to reach the lower-end market through financing -- one of its greatest strengths -- make its fortunes more dependent on the contours of the economy than a rival like

Dell

(DELL) - Get Report

, which sells the vast majority of its PCs to businesses. And fears over the sustainability of consumer demand haven't been alleviated by Gateway's more recent efforts.

'Who has to rent a PC for 20 bucks a week? You're going to the bottom of the barrel in terms of customers.'

Take the pact Gateway signed with nationwide rent-to-own firm

Rent-Way

(RWY)

late last month, under which Rent-Way will purchase PCs from Gateway and then rent them to its customers, who'll pay about $20 a week for a PC with

Gateway.net

Internet access. Gateway, in turn, made a $7 million investment in Rent-Way, giving it around a 1.3% stake.

From Gateway's end, this deal looks pretty sweet. Unlike with its Your:)Ware leases, the company assumes no credit risk, and can recognize the revenue immediately on the PCs it sells to Rent-Way. "We buy PCs from them just like we buy

Zenith

TVs from Zenith or

Sony

(SNE) - Get Report

stereos from Sony," says CEO William Morgenstern, who expects Rent-Way to buy about 200,000 Gateway PCs this year. That's a decent one-time shot of unit shipments for Gateway, and more importantly, a boost in beyond-the-box revenue through bundled subscriptions to the company's ISP service.

Bottom of the Barrel

But some wonder how far Gateway can stretch the consumer market.

"Is that a good-quality business?" asks one exasperated money manager who requested anonymity and who's short Gateway. "Who has to rent a PC for 20 bucks a week? You're going to the bottom of the barrel in terms of customers."

Gateway has no problem with that notion. The Rent-Way deal "allows us to get to a different customer base than we've historically been able to," says CFO Todd. "This is a much lower-end consumer for us, who may not qualify for some of the credit we offer."

Analysts agree. "I think it's actually fairly forward-looking of Gateway," says

Bear Stearns

analyst Andy Neff, who rates the stock a buy and whose firm hasn't done any recent underwriting for the company. "They've been the most creative in developing multiple channels. Their goal is to get computers to everybody."

But that noble mission could get more complicated if the Fed is successful in its clearly stated attempt to moderate consumption. The nethermost regions of the consumer market, still largely untapped by growth-hungry PC makers, would likely be the first to get hit in an economic slowdown.

"These are obviously people who are most vulnerable to a cutback in consumption when the economy slows," says Paul Kasriel, chief economist at

Northern Trust

in Chicago. "They are probably already burdened with debt and just aren't going to have much left over for the finer things in life, like computers." Kasriel holds no position in Gateway.

"You can't do without your cigarettes, booze and energy," he notes. "But you can do without a computer."