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Gateway increases quarterly revenue expectations

The PC maker is touting higher-than-expected sales to consumers and businesses.

Gateway is having a better-than-expected quarter.

The PC maker, which acquired eMachines in March, said Tuesday that its second-quarter revenue has so far exceeded its expectations.

Gateway now predicts its quarterly revenue will range between $860 million and $880 million, compared with its original guidance of $798 million. The company has received a boost from higher-than-expected revenue in many of its business segments, particularly retail sales and direct sales to companies, as well as lower general and administrative costs, it said in a statement.

Gateway also expects to report a smaller-than-expected loss of 13 cents to 14 cents per share, versus its previous guidance of 15 cents per share.

Including previously announced restructuring charges of between $250 million and $300 million, the company's loss per share will fall between 80 cents and 94 cents per share, the company said in its statement.

Following its acquisition of eMachines, Gateway has set out to remake itself. In April, Gateway closed all of its retail stores, saying it will pursue relationships with third-party retailers instead.

It has also embarked on a plan to return to profitability in 2005. That initiative has included sweeping layoffs that, when finished, will lower Gateway's employee ranks to about 2,000 from the 3,500 workers it had after the store closures. Last week, for example, Gateway said it would lay off as many as 300 workers and close its Sioux Falls, S.D., facility, in an effort to consolidate its Midwestern operations.

Meanwhile, the company has also been working to simplify its product lines and ink agreements with retail stores, as part of an effort to place Gateway-brand PCs and consumer electronics products on their shelves. Doing so will help pump up sales, Gateway believes.

The company appears to be making at least some progress toward its goal of establishing broader relationships with retailers. Later this month, Best Buy will begin selling some Gateway consumer electronics gear. However, the items Best Buy will sell are left over from Gateway's retail store closings. Thus the agreement ends once the inventory runs out.

Still, it's possible the deal will open other doors for Gateway, which has said it wants to negotiate agreements that would place its PCs on retail shelves in time for the back-to-school season.

As of last week, the company was still working on agreements with Best Buy and others.

"We believe the combined Gateway and eMachines (brands) should be a strong competitor to HPQ (Hewlett-Packard) and Sony in the retail space," Rod Sherwood, Gateway's chief financial officer, said Tuesday at a Bear Stearns conference for investors.

With that in mind, Gateway plans to create eMachines PCs for the low-price segments of the retail market and deliver Gateway-brand PCs for the midmarket and upper reaches. Thus its eMachines desktop models will continue to carry retail prices of between $399 and $699, Sherwood said, while Gateway models will cost more. Most likely, Gateway-brand models will start at $799 and go up to more than $1,000.

Gateway also plans to expand its presence in international retail markets with new retail agreements and, later, direct sales via the Web. Gateway sells eMachines PCs in stores in markets such as Japan and the United Kingdom. But it wants to expand into Germany and France later in the year, Sherwood said.

Meanwhile, Gateway has said that it expects its restructuring charges to total between $425 million and $475 million for the year.