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Plasma TVs ease Gateway loss

The PC maker reports a second-quarter loss that is smaller than expected but sees its revenue tumble.

Gateway reported a smaller-than-expected loss in the second quarter, citing plasma TV sales and cost cuts, but saw its revenue tumble.

The PC maker on Thursday reported a loss of $73 million, or 22 cents per share--6 cents narrower than estimated. Revenue for the quarter, which ended June 30, totaled $800 million. That compares with a loss of $61 million, or 19 cents per share, on revenue of $1 billion in the same period a year ago.

Analysts expected the Poway, Calif., PC maker to report a loss of 28 cents a share on revenue of $804 million, according to a survey by earnings tracking firm First Call.

Gateway has been working to cut costs and to expand its presence in the consumer-electronics market.

"We're pleased with the progress we're making in transforming from a traditional PC company to a branded integrator," Gateway CEO Ted Waitt said in a statement. "We have a lot of work to do, but every step in our transformation is being taken from a position of increased strength and momentum, and we expect to keep delivering on our milestones and goals through the balance of the year and beyond."

Gateway said it expects to pare its losses throughout the rest of the year. The company said in a statement that it is comfortable with analysts' estimates of a loss of 19 cents per share on $874 million in revenue for the third quarter and a loss of 9 cents per share on revenue of $954 million in the fourth quarter.

However, the company said the third- and fourth-quarter outlook does not reflect additional costs that could be incurred by potential outsourcing initiatives. Gateway executives would not elaborate on the plans during a conference call, but Waitt said the company will offer more details later in the quarter.

Gateway's loss was wider than a year ago. The company said those losses were stemmed by increased sales of its 42-inch plasma TV. Sales of the company's non-PC products ticked up from 24 percent of revenue during the first quarter to 28 percent during the second quarter.

Gateway also made progress toward its cost-cutting goals. It reduced selling, general and administrative costs by $96 million between the first quarter and the second, cutting the second quarter's figure to $212 million.

PC sales drop
Nevertheless, the company sold only 490,000 PCs during the period, a decrease of 25 percent from last year and 3 percent from the first quarter. Company executives attributed the decrease to the closing of 80 of its retail stores during the first quarter.

Despite its new consumer-electronics focus, Gateway said it is still committed to the PC business. The company is prepping a new low-cost desktop PC model--an extension to its Gateway 300 series--that will boost the profitability of its PC business, Waitt said.

"We feel this product is going to significantly enhance our competitiveness in the market," he said.

Gateway also started tuning its new business strategy designed to diversify its sources of income. The company plans to offer a wide range of consumer-electronics products, which work together and share data, under its own brand. Gateway plans to sell services to help customers install and operate their new gear.

PCs will become one of six or seven different products lines. The company will launch 50 products in 15 new categories this year. It began the blitz in late June with a Connected DVD player and home theater gear. Later, it expanded its line of televisions, including LCD TVs and plasma TVs.

Despite Gateway's optimism and its flood of new products, some analysts have expressed caution about the company's plans, given its long string of quarterly losses.

Andrew Neff, an analyst with Bear Stearns, noted in a June 13 report that Gateway has said that it expects to turn a profit in 2004 and to show a significant profit in 2005.

However, "we are more skeptical given the competitive landscape and the company's historical track record," he wrote.