October 23, 2003 5:07 PM PDT

Losses continue for Gateway

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Gateway's revenue was slightly higher than expected in its third quarter--but so was its net loss.

The Poway, Calif.-based hardware maker reported $883 million in revenue in the period ending Sept. 30, and a net loss of $139 million, or 43 cents a share, including restructuring charges. In the same period a year ago, Gateway reported revenue of $1.1 billion and a net loss of $50 million, or 15 cents a share.

Revenue was actually slightly higher than expected. Analysts had expected the company to generate $874 million in the quarter, according to First Call.

Gateway, though, acknowledged that its earnings per share were a penny lower than analysts' expectations. Excluding restructuring charges, the company reported a net loss of 20 cents a share. Wall Street was expecting the company to post a loss of 19 cents a share, according to First Call.

The company is in the middle of a massive personality change. Along with Dell, Gateway helped usher in the popularity of buying PCs directly from manufacturers. Although it was one of the fastest-growing PC makers a few years ago, the company's PC shipments are now rapidly shrinking.

In the third quarter, for instance, Gateway shipped 558,000 PCs, a 24 percent decline from the same quarter a year ago. PC shipments grew as a whole by about 14 percent during the quarter, according to research firm Gartner.

To offset this decline, Gateway has been actively releasing products for the consumer electronics market. During the quarter, it released its first branded digital cameras and has been growing its share in the plasma and LCD (liquid crystal display) TV market.

"We met or exceeded all of our milestones, and that's no small feat, when you consider what we went through as a company," Gateway CEO Ted Waitt said. "We are a completely different Gateway and a stronger Gateway."

The company has introduced a total of 72 products and services in 16 new product categories since it announced its restructuring plans in May.

Gateway expects a fourth-quarter revenue between $925 million and $975 million due to the traditional holiday sales bounce and a shift in sales from lower-end PCs and toward high-margin consumer electronics products. Meanwhile, the company's net loss for the period should amount to 9 cents to 15 cents a share, excluding restructuring charges. Analysts expect the company to report a fourth-quarter loss of 9 cents.

Shares of Gateway fell in after-hours trading to $5.50. During the regular trading session, the stock declined 5 cents, or about 0.81 percent, to end the day at $6.10.

The competitive landscape is getting more crowded, as competitors like Dell are jumping into the consumer electronics market, with new offerings such as LCD televisions.

But Gateway believes that it has an edge over its rival. "Dell is just beginning to get in the category," said Rod Sherwood, Gateway's chief financial officer.

Gateway's digital TV unit shipments grew 70 percent sequentially in the third quarter, while its digital camera shipments exceeded expectations.

Sherwood said in the next couple weeks, Gateway expects to "have more to say" on the U.S. Securities and Exchange Commission investigation into its 2000 accounting practices. The company earlier this year received a Wells Notice from the SEC, allowing it to mount an argument on why it should not be charged in the case.

 

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