Gateway beats the Street

The computer maker reports a jump in PC shipments, which helped it beat analyst expectations with a net income of $75.9 million.

3 min read
Gateway 2000 today reported a jump in PC shipments, which helped the computer maker beat analysts' expectations.

For the first quarter ending March 31, net income was $75.9 million, or 48 cents per share, compared to $67.5 million, or 43 cents per share, for the same quarter a year ago.

Analysts were expecting profits of 43 cents a share, according to First Call.

Shares in Gateway rose on the news, nearing their 52-week high to close at 57.25, up 1.81 from yesterday's close of 55.44. The stock has traded as high as 57.5 and as low as 25.06 during the past year.

Gateway shipped 767,000 personal computers during the quarter. That is up 38 percent over the first quarter a year ago when the company shipped 555,000 PCs.

The increase in shipments boosted sales 22 percent to $1.7 billion, from $1.4 billion a year ago and offset the drop in average unit prices, which dropped 12 percent to $2,253, compared with $2,558 a year ago. Prices were also down 3.1 percent from the fourth quarter.

"Our strong first quarter unit growth was driven by continued healthy demand in consumer markets and expansion of Gateway Country stores," said Ted Waitt, chairman and CEO of Gateway.

Gateway sells its computers directly to customers and sells many systems in the more lucrative mid-range market segment. Here, full-featured systems typically range in price from $1,500 to $2,500.

Though historically a company which sold PCs to individuals, it is now beginning to win over many small business customers. Reflecting this, the company is targeting its advertising increasingly at small businesses.

Gateway said that inventory turns increased to 26 this quarter, a new company record. Gross margins were up to a record level of 19.5 percent from 18.7 percent in the first quarter of 1997, and up from 18 percent in the fourth quarter of 1997. The company said it benefited from the direct business model and from continued component cost declines and improved inventory turns.

During the quarter, the PC maker appointed Jeff Weitzen president and chief operating officer.

Shipments of portable products increased 51 percent over the first quarter of 1997, and comprised about 12 percent of total sales.

Sales from international operations represented 15.4 percent of total company sales. Revenues in the Asia/Pacific region accounted for about 6 percent of total sales.

But in the U.S., Gateway faces increasing competition from computer makers like Compaq and IBM which are beginning to flirt with a more direct, efficient build-to-order sales model.

On the flip side, Gateway and direct competitor Dell have started to sell through more traditional way indirect sales channels to expand their customer reach.

Gateway this week announced a division to build stronger ties to dealers, as it attempts to adopt the distributor-centric sales model for corporate customers that vendors like Compaq, IBM, and Hewlett-Packard have built their corporate business upon.

Also, Gateway has opened six Country stores in the first quarter in Clearwater, Florida; Cranston, Rhode Island; Portage, Michigan; Morrow, Georgia; Mission Viejo, California; and Monrovia, California. These six new stores bring the total domestic Country stores at the end of the quarter to 43.

Two new call centers were opened in the first quarter, one in Rio Rancho, New Mexico and another in Colorado Springs, Colorado.

Gateway also unveiled today a new branding campaign. The company changed its name to Gateway, dropping the "2000," and introduced a new logo for worldwide use.