Gateway falls short of expectations

Gateway 2000 Inc. reported a third-quarter loss of $107 million, or 68 cents per share, on revenues of more than $1.5 billion.

The results included $113.8 million in onetime charges associated with the acquisition of Advanced Logic Research Inc. and Amiga Technologies Inc., as well as write-offs from employee severance packages and discontinued product lines.

Excluding these charges, the PC maker posted a profit of $6.7 million, or 9 cents per share, falling short of First Call estimates of 11 cents per share.

"The writing was on the wall some time ago," said Louis Mazzucchelli, an analyst at Gerard Klauer Mattison. "They got caught up in the assumption that they were growing faster than they really were. They sort of willed themselves to higher growth that didn't materialize."

Gateway shipped 622,000 PCs in the quarter, a 31 percent increase over the 474,000 PCs shipped in the year-ago quarter. Revenues increased 25 percent from the $1.2 billion reported in the same period last year.

"We continue to gain market share, but our growth in the quarter wasn't what we expected," said Ted Waitt, Gateway chairman and CEO. "We took aggressive action on our inventory issues and remain focused on reducing overhead costs. We ended the quarter with accelerating demand, which contributed to our backlog growing by nearly 40,000 units over last quarter."

Last month, the company issued a preliminary warning that its quarter would fall short of expectations, which at the time pegged profits at 47 cents a share.

Gateway's sluggish performance comes at a time when other major computer makers are surpassing analysts' expectations. Compaq Computer Corp. last week posted record third-quarter sales, and IBM pulled in strong third-quarter results as well. Dell Computer Corp., which reports next month, is also expected to post an improved third quarter over year-ago figures.

"I think they've made the choices they had to make to get out of the hole," Mazzucchelli said. "They focused on getting rid of their inventory overhang and are in a better position for the fourth quarter."

Gateway is currently undergoing a restructuring, which has claimed 300 employees, or about 2 percent, of a worldwide workforce of 12,000.

"They laid it all out in September, so these numbers aren't that surprising," said Barry Bosak, an analyst at Smith Barney. "They know what their challenges are, and are going forward. We'll see if they can execute."

Gateway shares lost $1.88 per share to $31 Thursday before the earnings were announced.