Gateway on Road to Rebound
Gateway Inc. said Thursday that its fourth-quarter revenue grew 9.3%, bringing the third-largest U.S. maker of personal computers to its first profitable year since 2000.
But the Irvine-based company said parts shortages kept it from filling enough orders to meet analysts’ expectations about profit margins and direct sales to the public.
“We are disappointed by our inability to manage gross margins,” Chief Executive Wayne Inouye said on a conference call with financial analysts.
Gateway’s gross profit margin in the quarter was 7.7%, compared with 8.8% a year earlier. Inouye promised that “a number of initiatives” to address the problems would be unveiled over the coming year.
Gateway said it earned $22.4 million, or 6 cents a share, in the fourth quarter, compared with a profit of $94 million, or 25 cents, a year earlier because of a one-time stock transaction. Without the stock deal Gateway would have lost money in the year-earlier quarter.
Revenue was $1.12 billion, up from $1.03 million.
Excluding a one-time tax benefit, Gateway earned 4 cents a share, short of the 5 cents a share that financial analysts polled by Thomson Financial had expected Gateway to earn in the quarter.
Gateway shares, which declined by a penny Thursday to close at $2.78, dropped another 22 cents after hours. Gateway no longer issues guidance for future performance.
“2005 was a year that saw lots of change,” said Charles Smulders, an analyst with technology market researcher Gartner Inc. “They did much better on the retail side but they’re still working on their direct sales.”
For the full year Gateway fell a bit short of expectations, earning $49.5 million, or 13 cents a share, compared with analysts’ consensus of 14 cents a share. In 2004 Gateway lost $475 million, or $1.31 a share.
Gateway’s revenue for 2005 was $3.85 billion, up from $3.65 billion the year before.
Retail sales grew 31% to $792 million, while professional sales to businesses and schools declined 9% to $217 million.
Gateway’s last full-year profit was $316 million in 2000 on revenue of $9.7 billion.
“If you look at the operational swing, we went from losing $202 million in 2004 to making $40.9 million in 2005,” Inouye said in an interview. “I’d call that a lot of progress.”
Gateway acquired rival EMachines Inc. in 2004 and hired Inouye, that company’s leader, as its own CEO. He launched a turnaround plan for the computer maker that included closing its own stores, getting out of the consumer electronics business and putting its computers into major retail outlets.
Analyst Smulders said Gateway had made strides building consumer awareness by making its PCs available in Best Buy, CompUSA and Circuit City stores.
“It’s difficult to fight against the strong advertising presence” of Dell Inc. and Hewlett-Packard Co., Smulders said. “But they have good relationships with retailers in the marketplace.”
