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Gateway cuts outlook for year

The PC seller met third-quarter earnings estimates, but still trimmed its sales and earnings guidance for the rest of the year.

Gateway on Thursday posted third-quarter earnings that met analysts' estimates, but cut its sales and earnings outlook for the remainder of the year.

The direct PC seller said it lost $50 million, or 15 cents per share, on revenue of $1.12 billion for the three months ended Sept. 30. That compares with a loss of $519.6 million, or $1.61 a share, on revenue of $1.41 billion in the same quarter a year ago.

Analysts were expecting a loss of 15 cents, according to earnings tracking firm First Call.

Looking forward, Gateway said it now expects full-year revenue to be $4.3 billion to $4.5 billion, with a pretax loss of between $310 million to $330 million, excluding special charges. That's down from a July forecast of full-year revenue of $4.5 billion to $5 billion and a pretax loss of $200 million to $250 million.

Gateway said it expects to lose between 10 cents and 13 cents per share for the fourth quarter, with sales up from the just-reported quarter.

"Despite a challenging consumer-spending environment, our efforts to continue growing the business paid off," Gateway CEO Ted Waitt said in a statement. "We continue to deliver progress on our plan to return Gateway to long-term, sustainable profitability and growth."

Some analysts had expected Gateway to cut its guidance for the full year amid a weaker-than-expected PC market.

"We are not seeing signs of a stronger second half for this year and thus believe management may have to revisit its previous guidance," Morgan Stanley analyst Rebecca Runkle said in a research note earlier this week.

In an interview, Gateway Chief Financial Officer Rod Sherwood said the company expects sales to grow "some" in the fourth quarter compared with the third quarter. The expectations are based on gains in market share and some seasonal improvement from holiday shopping.

"We think we are going to be up in the fourth quarter sequentially, but the economy as a whole is soft," Sherwood said.

The company is going to stick with its plan of trying to be the low-cost leader but still aims to return to profitability next year, he said.

"We said we'd do that at some point in calendar 2003," Sherwood said. "That's still the plan."

Gateway has been going through a number of changes, including a new logo that downplays the company's cow-spotted heritage.

Earlier this week, Gateway said it would boost the amount of electronics gear it carries in its stores, stocking up on things like MP3 players, digital cameras and eventually a Gateway-branded digital television. Last week, Gateway closed two of its stores as their leases came up for renewal.

Gateway has been gaining share over rivals in the U.S. consumer market for the past three quarters and appears to have gained overall U.S. market share in the third quarter, Sherwood said.