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Gateway misses the mark
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January 11, 2001: 6:56 p.m. ET
Misses lowered forecast, drops 2001 guidance, will cut 12 percent of staff
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NEW YORK (CNNfn) - Personal computer maker Gateway Inc. missed lowered fourth-quarter earnings estimates Thursday evening, cut its forecast for 2001 and announced more than 3,000 layoffs meant to streamline operations.
For the first time in Gateway's history, its personal computer business lost money, with all of the company's profits coming from "beyond-the-box" services, such as Internet access.
The direct computer retailer earned $37.6 million, or 12 cents per share, excluding a special charge. Analysts surveyed by First Call had lowered their forecasts to 37 cents a share from 62 cents a share after a Nov. 29 earnings warning from the company. The company earned $126 million, or 38 cents a share, in the year-ago fourth quarter.
Gateway CEO Jeff Weitzen said on a conference call that personal computer demand became "materially worse" between the time the company issued its warning and the end of the quarter.
"It was one of the worst Christmas sales periods in the history of the industry," Weitzen said. "In addition, we didn't move as fast on the expense side as we would have liked."
"Softer sales have caused inventories of our competitors to swell, and have touched off an aggressive pricing environment that will have negative consequences for the PC sector for the next six months," Weitzen said in a statement.
 The company said that "continued deterioration of worldwide PC demand," meant that its new guidance for full-year 2001 earnings would be $1.44 a share, which is 23 percent below the $1.88 per share analysts surveyed by First Call were projecting for the period. Gateway said it does expect a rebound in the market in the second half of the year.
Gateway took a $187 million charge during the quarter, most of which was related to the write-down of the company's investments in technology-based companies and other assets. The charge gave it a net loss in the fourth quarter of $94.3 million, or 29 cents a share.
At the beginning of the quarter, Gateway had planned to do $3 billion in sales. Its actual revenue came in far short of that at $2.37 billion and was lower than the $2.55 billion recorded in the same period a year earlier. Analysts had been looking for sales of $2.64 billion in the most recent period.
The company said it now expects 2001 sales to increase 3 percent, to $9.94 billion. Analysts were looking for 2001 revenue of $10.86 billion. Gateway forecasts that its first quarter earnings per share will be 21 cents, second quarter 23 cents, third quarter 52 cents, and fourth quarter 49 cents.
Furthermore, Gateway said it plans to layoff more than 3,000 of its 24,000 workers to reduce its costs. As a result, Gateway will take a $50 million pre-tax charge in the first quarter. It said it would also streamline manufacturing, consolidate vendors and cut other administrative and sales expenses.
"When you plan for $3 billion in sales and you do $2.4 billion, you have a cost problem," said Gateway CFO John Todd. Todd said that Gateway aims to reduce its selling, general and administrative expense to $370 million per quarter, which would be $117 million lower than it was in the fourth quarter and about even with its level in the fourth quarter of 1999.
Shares of Gateway (GTW: Research, Estimates) declined $2.90, or 12.7 percent, to $20 in after-hours trading following the report, after finishing regular-hours trading up $2.96 at $22.90 ahead of the announcement. 
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Gateway
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