October 18, 2001 4:30 PM PDT

Gateway reports expected loss

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Gateway reported on Thursday a hefty loss, as expected, after the PC maker pulled back from overseas markets and tried to deal with a steep drop in demand following the Sept. 11 terror attacks.

However, the company said it is hopeful it can meet a goal set this summer of returning to a pretax profit in the fourth quarter, excluding special charges.

Including special charges, Gateway had a net loss of $520 million, or $1.61 per share, on sales of $1.4 billion. Excluding the charges, Gateway had a pretax loss of $83 million, or 17 cents per share, which was at the far end of the company's recently revised outlook.

A year ago, Gateway earned $131.8 million, or 40 cents a share, on sales of $2.5 billion.

A consensus of analysts was expecting a loss of 15 cents per share, excluding charges, according to First Call.

"We were impacted from Sept. 11 as everyone was," Chief Financial Officer Joseph Burke told CNET News.com. Burke said the company also faced greater-than-anticipated losses associated with pulling out of its foreign markets. However, he said the company has completed most of its restructuring, cutting 25 percent of its staff, slimming its product line and closing several call centers and other facilities.

"We think for the most part we've got the execution risk behind us on a lot of the structural changes," he said.

The company warned on Oct. 4 that it expected a pretax loss of 14 cents to 17 cents a share, excluding charges, after seeing a drop in demand following the Sept. 11 attacks.

Gateway has been hard hit by the shrinking PC market. Gateway said it shipped 818,000 PCs in the United States during the third quarter, down 31.5 percent from last year's 1.2 million, but up from 798,000 in the prior quarter.

Poway, Calif.-based Gateway also reaffirmed that it plans to return to profitability in the fourth quarter, on a pretax basis and excluding special charges. Unit sales should rise from third-quarter levels, Gateway said.

CEO Ted Waitt said during a conference call that Gateway will introduce new products that re-establish the company as a technology leader. In the fourth quarter, Gateway will also look to find new ways of selling bundles of gear and services as it looks to remake its image from PC seller to technology consultant for consumers and small businesses.

"Many people aren't aware of all of the things we can do," Waitt said.

Burke said that sales have rebounded since their lows after the Sept. 11 attacks but did not offer a specific prediction as to how much profit or how much of an increase in unit sales the company expects in the holiday quarter.

"We're just saying we're in the black," Burke said. "Just getting to (profitability), we think, is going to be a good achievement."

Burke said the company feels it has about the right number of stores after closing many of its outlets earlier in the year, adding that the stores helped the company increase its share of the U.S. consumer market in the third quarter.

"A lot of that was through our local presence in the stores," he said.

The company, which saw founder Waitt reclaim the helm in January, has responded to the dip by slashing jobs and pulling back from overseas markets as it looks to become a smaller, but more profitable and services-oriented company.

 

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