Profits Up, Gateway Boasts Business Never Better
By Scott Hillis
LOS ANGELES (Reuters) - Direct computer seller Gateway Inc. posted better-than-expected profits
Thursday as executives shrugged off fears of an industry slowdown and gushed that ''business has never
been stronger''.
The South Dakota-based company, known for its down-home dairy cow black and white packaging,
showed no sign of relinquishing its title of third-largest computer retailer as first quarter earnings soared
to 62 cents a share from 48 cents a year ago.
That also beat Wall Street estimates of 60 cents a share and contrasted sharply with the world's
number one computer maker, Compaq Computer Corp. (NYSE:CPQ - news), which Wednesday
reported profits that were half of analyst predictions. Warnings earlier in the month by Compaq that its
profits would fall short alarmed traders, who sold off computer shares on fears that the sector was
heading into a slump.
Gateway said its direct sales strategy, personalization of hardware, and Internet access helped boost
profits to $99.58 million on revenues of $2.1 billion, a jump of 31 percent from the $75.87 million a year
earlier.
''The strategy we've been executing for the past year is paying off with real, noticeable momentum in
the consumer marketplace,'' Gateway Chief Executive Officer Ted Waitt said in a statement.
Despite average unit prices that fell to $1,938, or 14 percent, from the first quarter of last year, Gateway
managed to boost profit margins to 21.4 percent from 19.5 percent. It said average prices fell 3 percent
from the previous quarter.
In the statement and later in a conference call, Waitt said Gateway hoped to leverage its popularity
among household buyers to muscle into the small and medium-sized business market as the company
heads into a traditionally tough second quarter.
''Our consumer business has never been stronger, and now we're positioned to expand that success
into the small and mid-sized business arena,'' Waitt said in the statement.
The company said that was more than made up by double-digit growth in the United States and Asia
Pacific more than offset a 13 percent drop in revenues in Europe due to sluggish business buying.
Boasting it had captured one-quarter of the U.S. PC market, Gateway said it had shipped 1.085 million
computers in the first three months, a rise of 42 percent from a year earlier.
Sales to the Asia-Pacific region were even more spectacular, it said, with unit shipments soaring 96
percent compared to a year ago.
In a conference call after the earnings announcement, executives cautioned that the second quarter was
typically a difficult period as seasonal factors curtailed sales.
''Q2 is historically a difficult quarter for Gateway. We understand this and we are aggressively focusing
on the business segment,'' said Chief Financial Officer John Todd.
Waitt added, ''The environment in the PC industry continues to be challenging.'' But he continued, ''We
feel we are positioned very well. We're looking for some exciting and challenging times ahead''.
As part of that strategy, the company earlier this month launched a financing plan for business
customers called Your:)Ware, allowing monthly payments and trade-in options after two years.
Executives also said they did not expect fears over Y2K, or the ''millenium bug'', to drag sales down in
the closing months of the century. The problem, in which older computers could mistake the year 2000
for 1900, has affected some parts of the computer industry, especially software.
''We do not see a Y2K impact in any of our segments, including education and government,'' said Jeff
Weitzen, Gateway's chief financial officer.
Earlier Stories
Gateway Earnings Rise, Business 'Never Been Stronger' (April 22)
Search News Stories Search News Photos
Apr 21 | Apr 20 | Apr 19 | Apr 18 | Apr 17 | Apr 16 | Apr 15 | Apr 14 | Apr 13 | Apr 12 |
