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Technology
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Gateway turns profit, forecasts losses
graphic January 24, 2002: 6:02 p.m. ET

PC maker beats 4Q estimate but warns of deficits moving ahead.
By Staff Writer Richard Richtmyer
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NEW YORK (CNN/Money) - PC maker Gateway Inc. on Thursday reported a fourth-quarter profit that beat expectations but warned that it will lose money for the next several quarters as it becomes more aggressive in pricing its products.

The company also announced another round of layoffs, on top of an already 25 percent reduction in its workforce, and said it will shutter some of its retail stores.

After the close of trading, the company said it earned $5.1 million or 2 cents per share, excluding restructuring and other one-time charges. That compares with a profit of 16 cents per share a year ago and is a penny better than what analysts generally had expected, according to a survey conducted by First Call.

At $1.13 billion, Gateway's (GTW: Research, Estimates) fourth-quarter revenue fell more than 53 percent from $2.45 billion in the same quarter a year ago and came in short of the $1.3 billion analysts had expected.

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Gateway also said it expects to log operating losses for the next few quarters as it becomes more aggressive in marketing and pricing its PCs. By First Call's count, analysts had expected Gateway to report sequential improvements in profit over the next few quarters.

"We plan to consistently execute this strategy through 2002 and exit the year as a robust, growing company with more than $1 billion in cash and an intensely satisfied customer base," Ted Waitt, Gateway's chairman and CEO, said in a statement.

The smallest of the U.S.-based top-tier PC vendors, Gateway's business has been especially hard hit by a fierce pricing war and a sharp decline in global demand for PCs.

Since he re-took the reins of the company as its CEO in January 2001 in an effort to turn the company around, Gateway has put in place a massive restructuring plan which includes cutting its work force by more than 25 percent.

The company also has pulled out of the International market altogether, choosing to concentrate its efforts exclusively in the United States, where it has been losing market share, mostly to Dell Computer, which has been the most aggressive on price over the last year.

Waitt also shifted the company's focus away from its "beyond the box" strategy, which centered on non-hardware revenue from areas such as computer training, financing and Internet service. Prior to his return as CEO, many analysts had praised the beyond-the-box strategy for the improvements it had been yielding in Gateway's bottom line.

"I think the company really is still struggling to figure out what its strategy is going to be to compete against Dell," Robertson Stephens Analyst Eric Rothdeutsch told CNNfn's Market Report Thursday.

Earlier Thursday, Gateway said it will lay off another 2,250 workers and close 19 of its 296 "Gateway Country" retail outlets.

Analysts have been concerned about Gateway's dwindling revenue and market share. Earlier this month, credit rating agency Moody's Investors Service cut Gateway's credit rating to "junk" status, saying it was worried about Gateway's ability to compete in an increasingly competitive marketplace.

Standard & Poor's made a similar move in late December.

Waitt said the company's balance sheet is strong enough to weather the transition to a more aggressive PC marketing strategy, which he said will result in significantly increased unit volumes above levels otherwise anticipated.

At the same time, he said the company intends to continue to develop and refine its "solutions business" as a complement to the more aggressive PC pricing strategy.

"We've made a lot of progress in 2001 and now it's time to grow," Waitt said. "We have a great brand, a unique distribution model and the commitment to provide the best value to our customers for their technology solutions and that's exactly what we're going to do.

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

The company said it ended the year with $1.2 billion in cash and marketable securities.

Shares of Gateway (GTW: down $0.24 to $6.36, Research, Estimates), which have fallen more than 72 percent over the past year, slipped 24 cents to $6.36 on the New York Stock Exchange ahead of the earnings release. graphic





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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.

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