Dell Gains on Demand for PCs; Gateway’s Sales Weak
The fortunes of two personal computer rivals diverged sharply Thursday as Dell Computer Corp. said it would meet revenue and profit goals for this quarter, while Gateway Inc. blamed a wider-than-expected quarterly loss on slowing sales after last month’s terrorist attacks.
Dell, the largest PC maker, said it saw a surge in replacement orders from customers hit by the attacks and by government and relief agencies in the weeks that followed. “We saw the fundamental demand come back pretty nicely,” Chief Executive Michael Dell said on a conference call for investors.
Dell said the company is on track to meet forecasts for a profit of 15 cents to 16 cents a share for the quarter ending Nov. 2. Dell’s shares jumped $1.68 on Thursday to $22.32 on Nasdaq.
Gateway, on the other hand, will take a special charge of $100 million to $130 million to mark down various investments and said that demand weakened for its products after the Sept. 11 attacks.
Gateway, based in San Diego, said it now expects to report a loss of 14 cents to 17 cents a share before special charges, more than three times what Wall Street had been expecting.
“This quarter has just been brutal for them,” said Brett Miller, an analyst at A.G. Edwards & Sons.
“Virtually every segment of our business was adversely affected in the days and weeks following the tragic events,” said Chief Executive Ted Waitt.
Yet even at Gateway, sales have returned to the level before the disaster, Waitt said. He expects the company to turn a profit on a pretax basis and before any charges in the fourth quarter.
Gateway, the No. 4 personal computer maker, has been struggling with a price war sparked by Dell.
Taken together, the comments by the two CEOs suggest that the computer business has not been as drastically damaged as many investors feared after Sept. 11, when a slide in the industry’s shares began.
Gateway shares were up slightly in after-hours trading, following a gain of 15 cents to $4.85 on the New York Stock Exchange before the announcement.
If the overall picture was reassuring for technology investors, it also showed that Dell is fast pulling away from the rest of the PC pack.
The company passed Compaq Computer Corp. earlier this year as the biggest seller of PCs in the world. Since then, Dell has continued to gain market share, aided by the low-cost structure it enjoys by skipping retailers and selling straight to businesses and consumers.
Dell executives said they still expect the PC industry to see overall revenue fall by 5% or 10% in the third quarter from the second quarter, with Dell’s sales flat or down 5%. The company’s revenue should be $7.2 billion to $7.6 billion, with 15 cents or 16 cents profit per share in the current period.
“Against a weak PC demand backdrop, Dell remains a defensive play,” US Bancorp Piper Jaffray analyst Ashok Kumar wrote in a report Thursday. But he added that the company “continues to be dependent on desktops and notebooks, a [market] that is in secular decline, for 70% of its revenue.”
Dell is also gaining some customers who are confused by Compaq’s pending acquisition by Hewlett-Packard Co. And some corporate buyers have policies that require at least two suppliers of every product, which gives Dell a new shot at those that relied only on Compaq and HP.
Meanwhile, Gateway, which sells to consumers in its own stores as well as on the phone and the Internet, is struggling.
In August the company said it would close its unprofitable international operations, slash its work force by 5,000 and try to improve customer service and support.
The overseas divisions did worse than expected in their final quarter, Gateway executives said Thursday.
After burning through about $150 million in cash in the period just ended, Gateway will have $850 million in the bank, the same amount it had forecast before Sept. 11.
“We’re continuing to see consistent demand across all categories right now,” Waitt said. “We think it’s going to lead to what could be a decent holiday season for us.”
