Gateway Sees Red for Third Quarter

The company lost $139 million in the third quarter on revenues of $883 million. The loss is more than two times the $50 million lost during the year-ago quarter.

Gateway Inc., still feeling the pains of its expansion beyond its traditional PC business and into higher margin consumer electronics and enterprise systems, lost $139 million in the third quarter on revenues of $883 million.

The loss was more than two times the $50 million lost during the same quarter last year, and the revenue was less than the $1.1 billion during the third quarter in 2002. During the three months ended Sept. 30, revenue in both the consumer and enterprise segments grew over the second quarter, but dropped when compared with the same period last year.

During a conference call with analysts and reporters Thursday, officials with the Poway, Calif., company recounted Gateways dramatic transformation since it announced in May its move toward becoming a branded integrator and emphasized how the transformation will turnaround the company.

"Weve completely met or exceeded all of those milestones" set out in May, Chairman and CEO Ted Waitt said. "Were now a completely different and stronger Gateway."

Among those milestones are 72 new products in 16 different categories, including 58 new products in the third quarter, Waitt said. The fourth quarter will bring another 50 or so product announcements, Waitt and Rod Sherwood, executive vice president and chief financial officer, said.

Those products reflected the areas Gateway is pushing into, particularly consumer electronics and higher-end enterprise offerings, including servers and storage devices. For example, Gateway introduced four new digital cameras in the third quarter, as well six new servers and three storage devices.

Another milestone was in the area of savings, Sherwood said. In the first three quarters of 2003, the company has accumulated savings of $70 million, and expects another $95 million in the fourth quarter. The savings come in a variety of areas, including the continued outsourcing of some of its PC product manufacturing—which included the closing of a manufacturing plant in Hampton, Va.—and the closing of various retail stores around the country. At the same time, Gateway remodeled its remaining 185 stores to help increase sales of both consumer and enterprise products.

Those stores will give Gateway an advantage over other vendors moving into the consumer electronics space, including Dell Inc., Waitt said.

"Were far ahead of where theyre at," he said. "And a lot of these products are things people need to feel, see and touch."

Despite its expansion beyond PCs, Waitt said Gateway will continue to play in that space, despite the pricing pressures from competitors. For example, the company re-entered the low-end space with such computers as the 310 series for the low-end, and the 510 for the mid-range. In November, Gateway will roll out the next version of its enterprise all-in-one PC, the Profile 5.

Waitt said Gateway also will continue its push into the small and mid-sized business space, led by Jocelyne Attal, a former IBM executive hired in September as executive vice president for business at Gateway to oversee the companys SMB strategy. In the fourth quarter, Sherwood said Gateway expects revenues to be between $925 million and $975 million, with revenue in the consumer electronics doubling over the third quarter. Over the next few weeks, the company will open two new regional distribution hubs—and probably a third—to more efficiently fill orders

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