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Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: D. Swiss who wrote (157594)	6/2/2000 1:02:00 PM
From: kaka	Respond to of 176387

This is the only GTWish story I could find. Certainly does not explain today's action. Good Weekend. Thursday June 01, 2000 (08:45 am ET) Why Gateway Wants More Out-of-the-Box Experiences Torrid PC growth could be over soon, so it's looking afield for new revenue sources By Sam Jaffe, Business Week Online Street Wise NEW YORK, Jun. 01 (Standard & Poor's) - For years on end, it seemed, Gateway Inc (GTW) was known as much for its cardboard boxes -- and their images of holstein cows -- as for the computer boxes inside them. Gateway's PCs did the job, though, turning a tiny South Dakota direct-mail operation into a San Diego high-tech giant that had revenues of $8.6 billion in 1999. Now, Gateway is thinking out of the box -- literally. It worries that the days of heady PC sales growth may be numbered. It's not alone. Ashok Kumar of US Bancorp Piper Jaffray predicts that growth in personal-computer sales will slow as much as 30% this year to 10% annually starting in 2001, and stay at that level for the next three years. That could be a predicament for Gateway, which is accustomed to 30% or better annual revenue growth. So the company is pushing on several fronts to increase its non-PC revenue. It's selling consulting services to small and midsize businesses. It's also producing new Internet appliances that are cheaper than PCs. The goal is for these new ventures to be producing 40% of its profits by the fourth quarter of this year. Condemned? A glance at Gateway's PC business shows why it's looking afield. Sales are still strong, with a record 160 million PCs expected to be sold this year globally, according to International Data Corp. That would be an increase of 30% vs. 1999, and Gateway has a chance to get a bigger piece of that pie than ever before, thanks to its traditional success in the home and small-business markets. Still, Danny Lam of FHI Research worries about Gateway's exposure to rising component and semiconductor prices. These will condemn the company's "core business of desktop PCs... to a period of slower growth and lower profit margins," he says. Indeed, whereas companies such as Compaq Computer (CPQ) and Hewlett-Packard (HWP) can absorb increases in component prices gradually, thanks to their slower sales channels, Gateway feels the pinch more much quickly because it sells directly to customers out of limited inventory. Hence its new strategy. "Theoretically," Lam adds, "it is possible for Gateway to meet expectations of revenue and earnings growth by entering into new businesses like consulting services." Another reason for concern, Lam says, is Gateway's lagging sales growth internationally. "They have not been successful in exporting their model to the fast-growing markets of Europe and Asia," he adds. By contrast, Dell Computer (DELL) recently announced that China is its fastest-growing region. "Last year [the Asia Pacific market] grew by 47% in terms of revenue, and China almost doubled," says Donald Collis, Dell's vice-president for investor relations. Gateway's first-quarter Asia Pacific revenue grew by only 27%, about the same as its sales to U.S. consumers. "Disappointing" Worse, Gateway's sales to businesses fell off dramatically in the first quarter -- by 19%. The post-Y2K spending freeze was the official reason the company gave for the decrease, although other PC makers didn't report such a dramatic drop in sales. "There's no other way to say it -- our first-quarter results were disappointing," says Gateway Chief Financial Officer John Todd. That's the main reason the stock has lost 18.8% since the beginning of the year. Analysts still expect the company to earn $1.83 per share in 2000, vs. $1.36 in 1999, according to First Call. But to do that, it'll have to perform a balancing act: Hanging on in PCs, while developing new businesses that may one day leave them in the dust.