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Gateway to fall short of expectations

Gateway stock falls after the company announced that net income will not meet analysts' expectations.

Gateway 2000 (GTW) stock fell more than 10 percent today after the company announced that net income will not meet analysts' expectations for the third quarter.

Gateway lost 3-3/4 points, from yesterday's close of 36-9/16, bringing the company's two-day loss to about 18 percent. It was the most actively traded stock on the New York Stock Exchange, with about 10.6 million shares trading hands.

Walter Winnitzki, an analyst at PaineWebber, today downgraded the stock to "neutral" from "attractive."

The company said today its quarter ending Sept. 30, would miss forecasts of 47 cents a share in profits, according to First Call.

"Basically our internal forecasts were overly aggressive," said Ted Waitt, company chairman and CEO, in a prepared statement. "When you fall short of your internal forecast, two things happen: Costs go up as a percentage of sales, and margins go down."

However, even as the company misses expectations, unit shipments in the third quarter are expected to be up about 30 percent over last year, "but clearly we were looking to do better than that," said Waitt.

In the year-ago quarter, the manufacturer of personal computers reported revenue of $1.2 billion, and profits of $60.7 million, or 39 cents a share.

The company expects that operating income for the upcoming results will be down to marginal levels before noncash charges related to the acquisition of ALR, and a one-time write-off of certain investments in information systems. The company also indicated that the UPS strike, lower average unit prices, and potential reserves against excess inventory will adversely impact third-quarter results.

Kevin McCarthy, equity analyst with Donaldson Lufkin & Jenrette estimated during the strike that Gateway shipped more than 50 percent of its products through UPS.

"We are taking the necessary actions to get our business back on track and we are looking forward to an exciting Q4," said Waitt.