Profitable Gateway to Cut Jobs, Stores

Although Gateway on Thursday posted its first profitable quarter in more than a year, the company plans to undergo what CEO Ted Waitt terms as "painful" cost-cutting measures, closing 19 stores and laying off 2,250 workers.

Direct-order computer maker Gateway Inc. on Thursday posted its first profitable quarter in more than a year, but then warned of future losses and said it will shutter more stores and eliminate 2,250 jobs.

During a conference call with analysts to discuss the earnings, Chief Financial Officer John Burke said the cost-cutting actions were necessary as the computer maker expects to post a "pre-tax loss for the next few quarters."

Gateway founder, Chairman and CEO Ted Waitt said the cost cutting, while "painful," will pay off by further reducing operating expenses and position the company to take advantage of expected growth in the second half of the year.

"We have the liquidity and financial resources necessary to forgo short-term profits to regain long-term growth and sustainable profitability," Waitt said.

Overall, he projected the company will post a net profit of $1 billion this year, a significant turnaround from the $1 billion net loss it recorded in 2001.

For the past four quarters, the nations fourth largest PC company has been among the hardest hit by the ongoing industry slowdown, felled by a dramatic decline in demand and an intense price war that further undermined profits.

Gateways latest round of layoffs, announced Thursday, amounts to 16 percent of its work force and marks a continuation of its efforts to downsize that began last year when Gateway closed its European operations and laid off 25 percent of its employees.

For the fourth quarter, the company, based in Poway, Calif., posted net income of $9.4 million, or 3 cents a share. Excluding a one-time gain from the early retirement of debt, Gateway had earnings of 2 cents a share, 1 cent higher than Wall Street had projected, according to a Thomson Financial/First Call survey.

Last year, Gateway reported that a net loss for the fourth quarter was $128.2 million, or 40 cents a share, on revenue of $2.45 billion. Prior to this latest quarterly report, Gateway hadnt posted a quarterly profit since the third quarter of 2000.

Perhaps of greatest concern to industry analysts and investors is Gateways slumping sales, with the company posting only $1.14 billion for the quarter, less than half of the $2.45 billion it posted a year ago.

Gateway rocked the stock market two weeks ago when it warned that its quarterly sales would fall well below Wall Street projections of $1.39 billion. On the heels of that announcement, Moodys Investors Service downgraded the PC makers bonds to speculative, or "junk" status, spurring a stock sell-off that sent the companys shares plunging 25 percent in one day.

On Thursday, the company announced that sales totaled only $1.14 billion for the final three months of 2001, a steep decline from the $2.4 billion it posted a year earlier.

In another ominous indication of the companys struggles, Gateway saw its unit sales plunge 24 percent from the previous quarter. Normally, the computer maker, which depends on consumer sales for most of its revenue, posts its strongest numbers during the holiday season.

With sales continuing to decline, Gateway moved to further cut operating costs, announcing Thursday that it will close 19 of its 296 Country Stores as well as lay off workers at various facilities throughout the United States.