Gateway: Chips Hit The Fan In Latest Qtr.

in General Discussion edited January 2014
Gateway Reports 2003 First Quarter Results

4/17/2003 4:31:00 PM


POWAY, Calif., April 17 /PRNewswire-FirstCall/ --

Gateway, Inc. (NYSE: GTW) today reported revenue of $844 million for the

quarter ending March 31, 2003, compared with $1.06 billion in the fourth

quarter and $992 million in the prior year period. The company reported

a net loss of $200 million or $0.62 per share, compared with a net loss of

$72 million or $0.22 per share in the previous quarter and a net loss of

$126 million or $0.39 per share a year earlier. The net loss for the quarter

includes a $78 million restructuring charge for expenses associated with the

company's previously announced growth and cost-reduction plans. A significant

portion of the increase in the net loss between the first quarter of 2003 and

fourth quarter of 2002 is attributable to the reduction in tax benefits in

2003. In 2003, the pretax loss is equivalent to the net loss.

Q1 Highlights

* The average unit price (AUP), which is defined as total net sales

divided by PC units, increased to $1,670, the highest level since the

first quarter of 2001. This in part reflects the company's strategy

of providing customers with maximum value across its PC product range

rather than competing purely on price.

* Gateway continued to reduce its operating costs and cost of goods

sold (COGS) in support of its $400 million cost reduction program.

It remains on target to reduce selling, general and administrative

(SG&A) expenses by an annualized $200 million a year and to save

more than $200 million in COGS in 2003.

* Gateway continued to grow its higher-margin, non-PC offerings with

the introduction of two new mid-range servers, the subsequent

addition of two rack-mounted servers and the addition of new digital

video offerings.

* Gateway's popular new 42-inch plasma display retained double-digit

market share. As a result of this and continued momentum in sales of

services and retail digital solutions, gross margin dollars from

sales of non-PC products showed healthy growth from the previous


* Customer satisfaction levels finished the quarter at their highest

level in more than two years and continue to be the best in the

industry, according to Catalina Marketing Research Solutions.

* Gateway also continued to add depth and world-class leadership and

expertise to its management team in the first quarter with the

appointment of several new senior executives. This new team is

leading Gateway's transformation from a traditional PC company

to an integrator of solutions incorporating existing and new

Gateway-branded products that will span more than 15 technology

categories by year end.

"Our performance in the first quarter was affected by the weak economic

environment as well as our shift to higher value products and services," said

Ted Waitt, Gateway Chairman and Chief Executive Officer. "We're going through

a major transformation of our business, but we are already seeing results --

stronger sales of mid to high-end PCs, growth of higher margin, non-PC

products and lower costs. Our new management team is pushing hard to reinvent

our core PC business, bringing exciting new products to market and continuing

to improve our cost structure."

Quarterly Sales

In the first quarter, Gateway sold 506,000 PCs, down 30 percent

sequentially and down 22 percent on a year-over-year basis. As discussed

during the company's March 17 conference call, the reduction in PC sales is

largely attributable to a sharpened focus by the company on mid to higher-end

PC sales and the evolving integration of Gateway's sales and marketing

efforts. As part of its overall re-engineering, Gateway is re-inventing its

PC business model to compete on value for the money in all areas of the PC

market, including entry-level price points, while achieving the company's goal

of regaining profitability in its PC business as quickly as possible.

Sales of non-PC products and services were 24 percent of revenue, up from

the previous quarter's 17 percent and the year-earlier period's 20 percent.

Sales of non-PC products and services comprised 90 percent of gross margin

dollars compared with 38 percent in the previous quarter and 79 percent in the

year-earlier quarter. The sequential increase was due to sales of retail

digital solutions, services and plasma TV shipments and lower PC unit sales.

Approximately 10 percentage points of the 90 percent described above is a

result of the $13 million of restructuring costs included in cost of goods


Pre-Tax Loss

Gross margin was 12.6 percent, which was negatively impacted by

1.5 percentage points due to restructuring costs. This is compared to

12.3 percent in the previous quarter and 12.6 percent a year earlier, the

latter of which was negatively impacted by 1.5 percentage points due to

restructuring costs.

The company's selling, general and administrative (SG&A) expenses

increased to $308 million, which includes $65 million of restructuring costs.

This compares to $249 million in the fourth quarter and $338 million in the

year-earlier quarter, the latter of which also included $83 million of

restructuring and other special charges.

The company's pre-tax loss of $198 million includes $78 million related to

its restructuring costs. This compares with a loss of $113 million in the

previous quarter and a loss of $196 million in the year-earlier quarter, the

latter of which included $99 million of restructuring and other special


Gateway has included the above supplemental information concerning

restructuring costs and other special charges to assist investors in analyzing

Gateway's financial position and results of operations. Gateway has chosen to

provide this information to investors to enable them to perform meaningful

comparisons of past, present and future operating results and as a means to

emphasize the results of core on-going operations.


The company remains on track to achieve its previously stated financial

objectives for the year. It expects to return to a positive operating cash

flow position by year-end and finish fiscal year 2003 with more than $1

billion of cash and marketable securities. As previously stated, the company

anticipates reducing annual SG&A expenses in 2003 by $125 million and $200

million annualized and decreasing COGS by $200 million in fiscal 2003.


  • Reply 1 of 1
    kecksykecksy Posts: 1,002member
    Ouch, I don't think Gateway will be around much longer. I give them until 2006.
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