Gateway 2000 Cites Price War, Strike in Weak-Profit Forecast

Gateway 2000 Inc., a big mail-order seller of computers, jolted Wall Street on Wednesday by warning of surprisingly weak profit due to industry price wars, product delays and troubles from last month’s UPS strike.

The company’s stock plunged more than 10% on the news that its profit would be marginal in the quarter ending Sept. 30, excluding the impact of special charges. Gateway stock tumbled $3.75 per share to close at $32.81 on the New York Stock Exchange.

Analysts had expected the company to earn 47 cents per share, down from the 78 cents per share Gateway earned in the year-ago quarter.

Gateway, a fast-growing company with $5 billion in annual revenue, still expects its unit sales of computers to grow by 30% in the quarter. But profits are getting hit by unusually steep price cuts by rival makers of desktop personal computers for consumers, by far Gateway’s biggest market.

Gateway also cited last month’s 15-day United Parcel Service of America strike as a lesser factor hurting its performance in its first acknowledgment that the two-week walkout hurt sales.

Gateway relies far more heavily on UPS to ship its computers than do its two closest mail-order competitors, Dell Computer Corp. and Micron Technology Inc. The company was forced to swallow more than $200,000 a day in extra shipping costs as it switched to higher-priced shippers such as Federal Express. That amounted to about $5 million in extra costs, including other expenses.

In addition, some of Gateway’s computers were weeks late in getting to customers, compared with typical UPS delivery of two to three days.

That cost Gateway some customers, Chief Executive Ted Waitt said in a telephone interview from the company’s North Sioux City, S.D., headquarters.