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Tech Industry

Downgrade clips Gateway shares

Gateway Inc. (NYSE: GTW) shaved off 1 3/4 to 48 1/2 Wednesday after ABN-AMRO cut the PC maker from an "outperform" recommendation to "hold." The stock also split 2-for-1.

Analyst Jonathan Ross said the arrival of the $199 personal computer could cause serious pricing problems for consumer PC vendors.

"We are downgrading our recommendation from outperform to hold, as we believe the market may be getting ahead of itself as expectations run high," Ross said in a research note. "Although we look forward to the possibility of a blow-out third quarter, we are setting our cautious new price target at $46 and eagerly look for buying opportunities below our target."

The irony here is ABN-AMRO raised its 1999 earnings estimate from $1.37 a share to $1.42 a share and its fiscal 2000 earnings from $1.74 a share to $1.76 a share.

Gateway shares have been on fire of late, surging to a pre-split high of 103 1/2 earlier this month after falling to a low of 36 1/8 in October.

While other PC makers complained about pricing pressures in the first half of the year, Gateway thrived.

Last quarter, it topped analysts' estimates, earning $89 million, or 56 cents a share, on sales of $1.9 billion.

First Call consensus pegs it for a profit of 34 cents a share in the third quarter and $1.42 a share in the fiscal year.

Twenty-three of the 24 analysts covering the stock rate it either a "buy" or "strong buy."

Among other widely held PC stocks Wednesday, Compaq Computer Corp. (NYSE: CPQ) fell 1/16 to 22 7/8; Apple Computer Inc. (Nasdaq: AAPL) lost 3/4 to 75 5/8; International Business Machines Corp. (NYSE: IBM) trimmed 5/16 to 131 11/16 and Dell Computer Corp. (Nasdaq: DELL) closed off 1 5/16 to 48 1/16.