Gateway Loses $72 Million in 4Q

Quarter contrasts sharply from same year-ago period, when the PC maker posted its first profitable quarter in more than a year.

PC maker Gateway Inc., hobbled by a disappointing holiday season, lost $72 million during the fourth quarter.

The loss came on $1.06 billion in revenue for the quarter ended Dec. 31, 2002.

The quarter contrasted sharply from the same period last year, when the Poway, Calif., company posted its first profitable quarter in more than a year, earning $9.4 million.

But while disappointing, the fourth-quarter earnings were not unexpected. Gateway had warned earlier this month that a poor holiday season would result in an even greater fourth-quarter loss than had previously been expected.

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Previously, Gateway officials had predicted $1.2 billion in revenue for the quarter. But while the number of PCs sold during the quarter—about 720,000—was a jump of 5 percent from the same period last year, much of that was offset by giveaways, price cuts and money the company had to spend in promotions, officials said.

During a conference call, Gateway officials declined to give guidance for the first quarter or the year, saying the economy was too unpredictable.

However, Ted Waitt, chairman, president and CEO, said the company is "going to prepare our cost structure as though it was going to be revenue flat."

One area in question are Gateways retail stores. Some analysts have argued that the stores raise Gateways costs while not significantly bumping up revenue.

However, Waitt said officials will review the role the 272 stores play in the overall picture. More than a third of the leases will be up for renewal this year.

"Were still viewing a retail presence and a local presidence as an intregal part of our strategy, but it must be a profitable part of our strategy," Waitt said.

For the year, Gateway reported a loss of $62 million on $4.2 billion in revenue. For 2002, unit sales fell 24 percent, to 2.7 million, according to the company, which was hard hit by the struggling economy and a reduction in demand.

Over the year, Gateway made several moves in hopes of bolstering its bottom line. It branched out beyond PCs by selling such products as plasma TV screens and MP3 players.

It also has been reorganizing its executive team. Earlier this month, the company named industry veteran Joe Formichelli, a former executive at IBM and Toshiba Corp., as executive vice president of operations. In addition, Gateway said David Turner, senior vice president of sales and marketing, will take charge of the companys business segment, while T. Scott Edwards, formerly with Sony Corp., will be executive vice president of its consumer business. This week, Gateway named John Engel, a former executive vice president at PerkinElmer Inc., executive vice president and general manager of its desktop PCs, and Scott Weinbrandt, a longtime executive with Dell Computer Corp., general manager of the server. Monica Gout, formerly a vice president of business solutions at Gap Inc. Direct, will be Gateways general manager of e-commerce, and William Parker, a senior vice president for Banana Republic stores, was named president and general manager of Gateways chain of 272 retail stores.

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