Gateway Says Profit Won’t Meet Estimates; BMC Issues a Warning
Gateway Inc. said Wednesday that it will miss fourth-quarter earnings estimates as a tight supply of Intel Corp. microprocessors and Y2K concerns slowed revenue growth, sending the computer company’s shares sliding in after-hours trading.
Gateway, a direct seller of personal computers, said it expects earnings of 42 cents a share excluding a charge, while analysts polled by First Call-Thomson Financial expected 49 cents. Its shares tumbled 18% to as low as $51 in response. The shares had closed at $62.25, down 69 cents, on the New York Stock Exchange.
Gateway’s announcement followed another profit warning from BMC Software Inc., whose highflying shares plunged 36%.
Shares in BMC, whose software speeds up corporate databases, fell $27.44 to close at $49.56, wiping out about $7 billion in market value. It was the most actively traded U.S. stock, with 60.3 million shares changing hands.
BMC estimated that profit excluding acquisition-related expenses totaled $100 million to $110 million, or 40 cents to 44 cents a share, in the quarter ended Friday, indicating that Y2K concerns played a role.
Houston-based BMC was expected to earn 53 cents, the average estimate of analysts polled by First Call-Thomson Financial. The profit warning is BMC’s second in a row.
Customers weren’t willing to execute large transactions in December, traditionally a busy month, possibly because they were “preoccupied with this unique year-end,” BMC Chief Executive Max Watson said in a vague reference to year 2000 computer concerns. The company wouldn’t elaborate, saying it hadn’t had time to analyze the preliminary results.
BMC’s warning sent shares of other software companies down as investors feared that they, too, may have the same problems as BMC. BMC, whose shares had risen 81% in the last year, was the 15th-best performer in the S&P; 500 over the last five years.
Shares of Redwood Shores, Calif.-based Oracle Corp. fell $5.69 to close at $102 on Nasdaq. Compuware Corp., based in Farmington Hills, Mich., fell $2.94 to close at $32.06.
San Diego-based Gateway, in its profit warning, said the supply of chips that run computers “was severely constrained, spotty and unreliable,” particularly for PCs costing $999 to $1,299. The shortages, which began in October, cost it $200 million to $250 million in revenue, Chief Financial Officer John Todd said.
“We’re all intensely frustrated with the supply situation we find ourselves in,” Chief Executive Jeff Weitzen said on a conference call. “We are not about to stand by and let the actions of others determine what products Gateway customers can buy.”
The company is working with Intel to resolve the problem, Todd said. He declined to comment on analyst speculation that Gateway may turn to Intel rival Advanced Micro Devices Inc. as a new supplier.
“In the near term, Gateway is going to have to look at a lot of supply options, and AMD is a proven entity,” said Frost Securities analyst Cody Acree. “I don’t think anybody that goes toward AMD is risking a credibility issue.”
AMD said Wednesday it’s shipping Athlon chips running at 800 megahertz, up from 750 MHz and matching Intel’s fastest Pentium. The two companies, now both at 800 MHz, had been leapfrogging each other in the race for the fastest chip.
“We have Athlon microprocessors that would make them very competitive in what they define as the ‘sweet spot’ of the market,” AMD spokesman John Greenagel said.
Intel spokesman Howard High declined to comment. Intel shares, which rose 69 cents to $83.63 in Nasdaq trading, slipped to close at $81.75.
Weitzen, who succeeded founder and Chairman Ted Waitt as CEO on Saturday, said Gateway will take steps in the “next week or so” to ensure that the chip-supply problem doesn’t occur again. He declined to elaborate.
Intel is struggling to meet demand for microprocessors as more people buy personal computers to get online. The company, which has 12 plants worldwide now making chips, last month said it’s taking steps to boost production at several U.S. plants.
Santa Clara, Calif.-based Intel said in late October that it would meet all commitments to sell chips to customers, even though supplies were tight because of rising demand. Sales of its chips usually rise in the fourth quarter because people buy PCs as holiday gifts.
In addition, Gateway said businesses delayed purchases because of fears about the Y2K date change. Todd said the Y2K issue, which was a problem only in December, cost it $100 million to $150 million in sales. Sales to government, education and business customers were hardest hit, the company said.
At the same time, Gateway’s push into providing services, dubbed “beyond-the-box,” has been successful. Its joint Internet service with America Online Inc. crossed the 1-million-subscriber mark, and sales over the Web have doubled from last year.
The company will report final results on Jan. 20.
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Tech Profit Warnings
Gateway Inc.’s share plunged to $51 in after-hours trading on the company’s profit warning.
Shares in BMC Software Inc. had hit a new high of $85.19 on Monday, but plunged 36% to $49.56 Wednesday after it said earnings won’t meet forecasts. Weekly closes and latest:
Weekly closes and latest:
Gateway: Wednesday: $62.25
BMC Software: Wednesday: $49.56
Source: Bloomberg News
