Gateway Posts $198-Million Quarterly Loss
Gateway Inc. said Thursday that its first-quarter loss widened by 62% to $198 million on slowing sales, but Chief Executive Ted Waitt said he hopes to turn the company around by reducing its dependence on the cutthroat market for personal computers.
The Poway, Calif.-based computer maker’s loss amounted to 62 cents a share, up from a loss of $123 million, or 39 cents, in the same quarter a year ago. Revenue slumped 15% to $844 million from $992 million.
It was Gateway’s ninth loss in the last 10 quarters.
“I hate to beat up on these guys, but it’s still not a stock that I would want to own at any price just given the fact that it has not proven it has a sustainable business model,” said Joseph Beaulieu, a computer industry analyst with equity research firm Morningstar Inc.
Waitt, who founded Gateway in an Iowa farmhouse in 1985, told analysts that he plans to stem Gateway’s losing streak by expanding its higher-margin businesses such as televisions, software and computer servers. He also said he wants the company to step up sales of non-Gateway items such as digital cameras, printers and digital music players.
“The No. 1 goal I have right now is to transform Gateway from a traditional PC manufacturer to what I’m calling a branded integrator,” Waitt said during a conference call. “And second is to get profitable and stay there by maintaining a strong liquidity position and maintaining our over $1 billion in cash position.”
Investors seemed willing to give Waitt the benefit of the doubt. They bid up Gateway shares to $2.55 in after-hours trading after the release of the earnings report.
In regular trading Wednesday, the stock rose 3 cents to $2.42 on the New York Stock Exchange.
Analysts were far more skeptical.
“When a company’s been losing money as long as Gateway has, I think it’s really important for investors to think that becoming profitable is your No. 1 priority,” said Beaulieu, who does not own shares of Gateway or its competitors and does not have a rating on the stock.
To that end, Waitt has embarked on a cost-cutting plan aimed at slashing costs by more than $400 million this year.
Last month, Gateway cut 1,900 jobs -- about 17% of its workforce -- and shuttered 80 of its 272 retail stores.
But Roger Kay, director of client computing at the technology market research firm IDC, said he doubted that the cuts would save the company.
“How sustainable is it if mostly what you’re doing is cost cutting to achieve your profitability?” Kay said. “The best you can say about it is that they have sufficient cash to continue operations for a number of quarters.”
Gateway needs to work fast to find new customers. Its sales of personal computers in the U.S. fell by 21.6% to 506,000 in the first quarter of the year, according to figures released Thursday by IDC and Gartner Dataquest, another technology market research firm.
Gateway’s market share now stands at 4.3%, placing it fourth in the U.S. market, according to the statistics.
Dell Computer Corp. topped the rankings from both research firms, with a U.S. market share just under 31%. Dell shipped 3.6 million PCs in the first three months of the year.
Hewlett-Packard Co., Dell’s perennial rival, was No. 2 with a 19% market share. IBM Corp. came in third with 4.8% of the market.
Notably, Toshiba Corp. muscled into the top 5 PC list for first time both in the U.S. and global markets despite the fact that it focuses almost exclusively on laptop computers, Kay said.
“It’s a testimony to the rise of the notebook,” he said. “People are making notebooks their principal PCs. They’re rising more rapidly than any other segment.”
