Gateway Revises Results, Refocuses on Computer Sales
Acknowledging that his company has gotten off track, returning Gateway Inc. Chief Executive Ted Waitt said Wednesday that the company will break even on operations this quarter before taking new restructuring charges in the face of declining sales.
San Diego-based Gateway, the nation’s second-largest direct seller of personal computers, said it will take $150 million to $275 million in charges to cover its departure from some international markets and the possible closure of some retail stores. The charges include a previously announced $50 million set aside for job cuts.
Gateway had been expected to earn 17 cents a share from operations in the first quarter, down from a restated 40 cents a year earlier. Waitt predicted a return to profitability and year-over-year sales growth in the second half of this year.
Gateway shares rose 48 cents to $17.20 during the trading day Wednesday as Waitt and other executives outlined their strategy for reversing the company’s slide. But after the markets closed, as Gateway released the new projections and restated earnings, the shares reversed direction, falling to $16 in after-hours trading. In July, the shares traded above $73.
Waitt, who founded the company in 1985 and returned as CEO last month, also made several revisions to last year’s reported financial results, wiping out $74 million in profit and leaving the company with net income of $241 million, or 73 cents a share, for the year 2000.
Gateway will pare the number of products it offers, trim its range of suppliers and rededicate itself to making customers happy, executives said. They said customer satisfaction had fallen to 70%, about average for the industry, from 80% in 1998. About half of the bonuses for senior managers will be tied to improvements in customer-satisfaction ratings.
The company will emphasize selling PCs and accessories first, then software and services, Waitt said. “We can’t be all things to all people,” he said.
Unlike Dell Computer Co., which sells its machines only through orders taken by phone and the Internet, Gateway also operates 384 Country Stores and 669 other retail outlets such as kiosks in OfficeMax Inc. outlets. The retail structure made it harder for the company to respond quickly to competitors’ price cuts, analysts said.
Gateway and Dell were hammered at the end of last year by a drop-off in demand. Gateway compounded its problems with investments in Internet companies. The company said Wednesday it would write off an additional $47 million in those investments in revising its fourth-quarter results.
Other changes to its 2000 results came from counting sales only when products are delivered, rather than shipped, and from an increase of $13 million in reserves for bad loans.
Gateway also said it made a series of small adjustments in its results for “certain accounting irregularities” at a foreign subsidiary. It blamed that problem on “former personnel” it didn’t identify.
Last month, Gateway posted slowing fourth-quarter sales and profit that was a third of what it had forecast. It reduced forecasts for 2001 and said it would fire more than 2,400 people--10% of its work force.
Within weeks, Waitt replaced Jeff Weitzen, who had served as chief executive for a year. Waitt also named a new chief financial officer and other executives.
Gateway controls about 15% of the U.S. consumer PC market, which accounts for about two-thirds of Gateway’s sales.
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Bloomberg News was used in compiling this report.
