Gateway PCs to Include AOL Access

By ASHLEY DUNN

Oct. 21, 1999 12 AM PT

TIMES STAFF WRITER

America Online, the largest Internet service provider in the world, and Gateway, one of the biggest sellers of home computers, announced a wide-ranging alliance Wednesday that will accelerate the practice of including Internet service contracts in the price of a new PC.

AOL will invest $800 million in Gateway over the next two years and, in exchange, Gateway has promised to spend $85 million in marketing AOL’s Internet services.

San Diego-based Gateway will package AOL with all of its computers and hand over to AOL the operation of its own Internet service, Gateway.net, though that service will retain its name and distinct identity.

The news of the alliance was released on the same day AOL reported robust earnings of 15 cents a share, 2 cents above analysts’ estimates.

Boosted by strong growth in membership, advertising revenue and electronic commerce, the company reported after the market had closed that revenue for its fiscal fourth quarter grew to $1.5 billion--a 47% increase over the same quarter last year.

Net income totaled $184 million, up from $50 million last year.

Shares of Dulles, Va.-based AOL rose $5.75 to $121 in regular trading on the New York Stock Exchange, then slid to $118 in after-hours trading. Gateway shares rose $3.94 to $50.75 in regular trading, also on the NYSE, then rose to $52 after hours.

“It’s fairly typical for AOL to beat estimates by a penny or two. This year people were wondering if they could keep growing,” said Michael Graham, an equity analyst in San Francisco for the firm Robertson Stephens.

AOL answered those doubts by setting records for membership gains in the first quarter of fiscal 2000, growing by 1.1 million subscribers, for a total of 18.7 million.

The Gateway deal suggests that prospects for continued growth are good, said Michael West, president of research and analysis firm MWest.com.

However, AOL has yet to forge a deal to offer high-speed Internet service through cable television lines--an option considered critical in the home market since so many homes have cable connections.

AOL Chief Executive Steve Case said the company’s strategy of offering high-speed links using both phone line and satellite technologies will ultimately pay off over a pure cable strategy.

At a Glance

* EarthLink Network, the Pasadena-based Internet service provider, reported a third-quarter loss of $13.7 million, or 42 cents a share, up from $1.1 million, or 4 cents, a year earlier. That narrowly beat Wall Street’s consensus expectations of a 43-cent loss, according to First Call. Revenue jumped 80%, to $89.6 million, as the company added 231,000 subscribers and boosted its total to nearly 1.6 million.

EarthLink is planning to merge with Atlanta-based rival MindSpring Enterprises, which reported third-quarter losses of $10.8 million, or 17 cents a share, contrasted with a net profit of $4 million, or 8 cents, last year. Analysts expected earnings of 4 cents. Revenue rose to $88.2 million, compared with $28.7 million a year ago.

* Launch Media, a Santa Monica-based Internet music firm, reported a third-quarter loss of $9.3 million, or 73 cents a share, compared with a loss of $6.6 million, or 78 cents, a year ago. Analysts expected a loss of 75 cents. Revenue doubled to $5.3 million from $2.6 million a year ago.

* Silicon Graphics Inc., the No. 4 maker of computer workstations, reported a larger-than-expected fiscal first-quarter loss after its chief executive left and sales fell. SGI’s loss from operations narrowed to $68 million, or 37 cents a share, from $77 million, or 41 cents, a year ago. The company was expected to lose 7 cents.

* No. 3 long-distance company Sprint Corp. said third-quarter profit fell 13% to $359 million, or 41 cents a share, compared with $415 million, or 47 cents, a year ago. The results were in line with expectations. Revenue increased 7.5%, to $4.3 billion from $4.0 billion.

* Western Digital Corp., as expected, reported a third-quarter net loss of $126.9 million, or $1.32 per share, compared with a loss of $194.7 million, or $2.20, a year ago. Revenue fell to $407 million from $650.9 million.

Technology and the Internet Business

Ashley Dunn

Ashley Dunn is the former weekend editor at the Los Angeles Times. He previously served as assistant managing editor in charge of California news. Dunn joined The Times in 1986 as a suburban reporter in the San Gabriel Valley and later moved to the Metro section, where he participated in coverage of the 1989 Loma Prieta earthquake and the 1992 Los Angeles riots. After a stint at the New York Times, Dunn returned to Los Angeles in 1998 as a reporter and then editor in The Times’ Business section. He later was named to run science coverage. He worked as deputy national editor from 2007 to 2011 and played a central role in the coverage of some of the biggest national stories of recent years, including the 2010 oil spill in the Gulf of Mexico and the 2008 election of President Obama. Prior to his career at The Times, Dunn worked at the South China Morning Post in Hong Kong, the Danbury News-Times in Connecticut and the Seattle Post-Intelligencer. Dunn is a California native who has worked as a dishwasher in Sacramento, a printer in San Francisco and a bicycle repairman in Walnut Creek. He has lived along the levees of the Sacramento Delta, the Powell-Hyde Street cable car line and the shaded streets of Pasadena. He is a graduate of UC Berkeley with a degree in English.

Gateway PCs to Include AOL Access

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