PC maker Gateway Inc. disclosed Monday that it expects to post a fourth-quarter profit, before taxes and one-time charges, as it had previously predicted, but warned that its sales will fall far short of Wall Streets expectations.
The direct-order computer maker, which hasnt posted a profit in more than a year, said unit sales for the last three months of 2001 were down 15 percent sequentially, based on preliminary data. The company will officially report its earnings Jan. 24.
The drop in PC sales, however, was partially offset by a 14 percent increase in average selling prices, Gateway said, with unit sales averaging $1,660 during the fourth quarter, compared with $1,460 the previous quarter.
Gateway, which recently relocated its headquarters from San Diego to less costly office space in nearby Poway, Calif., said Monday that it now expects to report revenue of approximately $1.16 billion for the quarter.
Market analysts polled prior to Gateways announcement had been projecting quarterly revenue of $1.39 billion and a loss of a penny per share (excluding one-time charges), according to Thomson Financial/First Call.
"Our fourth-quarter performance shows were making solid progress on our strategy of delivering integrated technology solutions," Gateway Chairman and CEO Ted Waitt said in statement issued along with the preliminary data Monday.
"Its clear that a significant portion of market demand was at the very low end of the PC market in the fourth quarter, driven largely by aggressive pricing and promotions," he said. "We stayed focused on our strategy and targeted higher-end customers during the holiday selling season, which allowed us to meet our previous guidance of returning to profitability, our primary goal."
But the companys lower-than-expected sales represent a "significant revenue miss," said market analyst Ashok Kumar of U.S. Bancorp Piper Jaffray in San Francisco, who expects the company will continue to struggle until it revamps its operations to dramatically bring down operating costs.
"The inherent fixed costs of the Gateway Country Stores and managements inability to leverage the store assets to sell value-add IT services lend to an unsustainable business model," said Kumar, adding that the computer maker will likely struggle to return to profitability over the next six months.
"Its inability to stabilize revenues during the fourth quarter bodes poorly for the seasonally weak first half of the year," he said.