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Gateway warning may hurt
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January 5, 2000: 8:29 p.m. ET
Company says 4Q shortfall stems from parts shortage, Y2K slowdown
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NEW YORK (CNNfn) - Market observers are expecting shares of Gateway to take a beating on Thursday after the computer maker warned Wall Street that it would miss its fiscal fourth-quarter sales and profit targets.
The problem stems from a shortage of microprocessors and other parts manufactured by Intel (INTC) that it uses in its low-end personal computers as well as slower sales to business customers, who deferred technology spending ahead of the millennium change, Gateway (GTW) said in a release after Wednesday’s closing bell.
As a result, Gateway said it expects to post earnings of 37 cents per diluted share, not counting the previously announced $30 million charge the company took in connection with its new partnership with America Online (AOL). Analysts polled by First Call had expected Gateway to earn 49 cents during the quarter.
"Supply of key processors and motherboards was severely constrained, spotty and unreliable, particularly in our consumer sweet spot in the $999 to $1299 price range," John Todd, Gateway’s chief financial officer, said in a statement.
The company characterized the shortfall as a one-time issue, and said it expects to meet Wall Street’s first-quarter earnings estimate of 41 cents per share, and $1.83 per share for the full year.
Even so, some market observers expect Gateway’s stock to take some punishment in Thursday’s session.
Gateway stock dropped to 55 in after-hours trading from its close of 62-1/4 on the New York Stock Exchange, where it ended the regular session down 11/16.
"I’m not persuaded that the market is going to be very ready to forgive them,” said Daniel Kunstler, an analyst at J.P Morgan in San Francisco. "So it becomes a little more of a ‘show me’ situation for them for some period of time.”
The component problem is specific to Gateway, because unlike other computer manufacturers, it relies solely on Intel as a supplier of key microprocessors and motherboards for its low-end systems, according to Kunstler.
"I don’t think you can completely generalize this one,” he said. "It looks like the peculiar relationship of dependency has produced the problem.”
Nevertheless, Kunstler said the investor perception could also weigh on other computer makers such as Dell (DELL) and, to a lesser extent, Compaq (CPQ).
Separately, Merrill Lynch earlier this week issued a report citing high component costs as a potential drag on Dell’s fiscal fourth-quarter operating results, expected to be released on Feb. 10.
Merrill’s report, however, was trumped on Tuesday by PaineWebber, which boosted its rating on the computer maker’s stock to "attractive” from "neutral” and raised its price target to $60 from $45.
Dell has not pre-released any sales or earnings figure, and executives declined to comment on the company’s current component-pricing environment.
After rising 3-5/16 to 49-5/16 in regular Nasdaq trade, Dell slipped 2-7/16 to 47-1/2 in after-hours activity. 
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