Gateway posts $107 million loss

Gateway posts a third-quarter loss as the company is hit with excess inventory and charges.

Dawn Kawamoto Former Staff writer, CNET News
Dawn Kawamoto covered enterprise security and financial news relating to technology for CNET News.
Dawn Kawamoto
3 min read
Gateway (GTW) today posted a third-quarter loss as the company was hit with excess inventory and charges.

The mail-order computer maker posted a net loss of $107.1 million, or 68 cents a share, for the quarter ending September 30, compared with net profits of $60.7 million, or 39 cents a share, a year ago.

Gateway also took a onetime charge of $113.8 million for its acquisition of Advanced Logic Research, for the assets of Amiga Technologies, severance costs from its recent round of layoffs, as well as the canceling of one software project and spending on certain computer equipment.

Gateway was expected to post a revised net profit of 11 cents for the quarter, according to First Call?s consensus of analysts' estimates. But analysts said the company missed the mark "moderately."

The computer maker cited excess inventory and significant declines in the market value of its inventory of components as the reason for lower profit margins. The company's gross margin in the quarter fell to 13 percent of sales, compared with 18 percent a year ago.

Revenues for the quarter reached $1.5 billion, up 25 percent from the same time last year. This came as unit shipments increased 31 percent, to 622,000 in the quarter, up from 474,000 a year ago.

"We continue to gain market share, but our growth in the quarter wasn't what we expected," Gateway chairman and chief executive Ted Waitt said in a statement. "We took aggressive action on our inventory issues and remain focused on reducing overhead costs. We ended the quarter with accelerating demand, which contributed to our backlog growing by nearly 40,000 units over last year."

Last month, the company issued a preliminary warning that its quarter would fall short of expectations, which at the time pegged profits at 47 cents a share.

Meanwhile, Gateway's anticipated sluggish performance comes at a time when other major computer makers are surpassing analysts? expectations. Compaq, for example, posted record third-quarter sales, and IBM pulled in strong third-quarter results as well. Dell, which reports next month, also is expected to post an improved third quarter over year-ago figures.

Gateway is currently undergoing a restructuring, which to date has resulted in trimming at least 2 percent, or 300 employees, from its worldwide workforce of 12,000.

Late in the quarter, Gateway made a number of product introductions, in response to the needs of corporate customers. But analysts have said Gateway may have overestimated sales to enterprise customers.

"They are seeing unit growth, but not the kind of ASPs or profitability that they thought they would," Daniel Kunstler, a technology analyst for J.P. Morgan Securities, said in an earlier interview.

During the latest quarter, Gateway introduced its first server computer products based on systems designed by ALR, which Gateway bought earlier this year. It also introduced new high-power personal workstation computers. In May, the company rolled out its E-series desktop computers for corporate customers.

Analysts note that it will take some time to get corporate buyers to pay attention to market newcomers, so it is too early to tell whether Gateway's foray into enterprise will work over the long term.

Despite the company?s falling performance, however, talk of Gateway being an acquisition target helped bolster the stock last July. The stock hit a 52-week high of 46-1/4 last summer, but has since trended down, closing at 31-1/4, down 1-5/8 from yesterday.