Gateway Reports Fourth-Quarter Loss of $72 Million

Times Staff Writer

Computer maker Gateway Inc. said Wednesday that weak holiday season sales contributed to a fourth-quarter loss of $72 million -- its eighth loss in nine quarters.

The loss of 22 cents a share capped a tough year for Poway, Calif.-based Gateway at a time when industry leaders Dell Computer Corp. and Hewlett-Packard Co. are squeezing competitors with aggressive pricing.

"We made steady improvements across our business through most of 2002, but the fourth quarter proved to be a challenge for us," founder and Chief Executive Ted Waitt said. "Even so, we did make progress in a couple of key areas in the quarter, and we're not about to let up in driving further improvements this year."

Fourth-quarter revenue was $1.06 billion, down from $1.14 billion a year earlier.

For the year, Gateway reported a net loss of $309 million, or 95 cents a share. In 2001, one-time charges brought Gateway to a loss of $1.03 billion, or $3.20 a share.

A generally disappointing holiday shopping season was aggravated by the price war between No. 1 PC supplier Dell and No. 2 HP.

"Clearly they're jockeying for competitive position, and that is dictating a lot of the pricing competition," Gateway Chief Financial Officer Rod Sherwood said.

Gateway will aggressively cut costs and improve its sales of computers and peripherals this year on its way back to profitability, Waitt said during a conference call with Wall Street analysts. He wouldn't predict when Gateway would turn a profit. Nor would he give details about new products, but said they would be in the areas of digital audio, imaging and networking.

Gateway's loss for 2002 included $62 million related to charges the company took in the first quarter associated with site closures, severance obligations and asset write-downs. A payment dispute with America Online accounted for 3 cents of the per-share loss, Sherwood said.

Revenue from Gateway's retail stores was up 4% compared with the fourth quarter of 2001, the first year-over-year increase in two years, Sherwood said. He would not give the percentage of Gateway's revenue coming from the stores. But he said Gateway continues to wrestle with how to optimize its retail strategy.

Gateway also said it had been sent a "Wells notice" by the Securities and Exchange Commission saying the agency may take action in an ongoing investigation into the firm's accounting, which Gateway said it "believes relates to matters from fiscal 2000."

Gateway shares fell 18 cents to $2.92 in regular New York Stock Exchange trading. They fell as low as $2.85 in after-hours trading after the earnings announcement.

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