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Technology Stocks : Gateway (GTW) -- Ignore unavailable to you. Want to Upgrade?

To: Bill F. who wrote (7696)	10/21/2000 9:50:49 PM
From: puborectalis	Read Replies (2) \| Respond to of 8002

Some Gateway Numbers Stay Inside the Box By GRETCHEN MORGENSON s the dark and stormy night descended upon technology companies in the third quarter of 2000, the results of Gateway shone like a beacon. On Oct. 12, the company said its revenues had grown 16 percent in the quarter from the comparable period of 1999, while earnings per share rose 31 percent. "The sky is not falling," said John Todd, Gateway's chief financial officer. Relieved investors have since bid up Gateway's stock 31 percent. But a closer look at the numbers finds less there than meets the eye. What Gateway did not say in its report was that sales of its personal computers were essentially flat in the quarter, at $1.948 billion. And earnings on those sales actually fell 21 percent. That might not be troubling, except that Gateway has added 800 retail outlets in the last year. Enormous expansions do not usually produce flat sales. So where did Gateway get its growth? From its so-called beyond-the-box business — sales of Internet service, warranties, financing customer purchases and so on. "Gateway is quickly realizing its goal of becoming a true solutions provider, not just a hardware seller," Mr. Todd said. Because the company is not a pure computer concern any more, Mr. Todd has told investors that he will eliminate some data from its reports. Gateway's new policy, under the Securities and Exchange Commission's fair disclosure regulation, or F.D., means that it will no longer report average unit prices on the computers it sells, or the number of units sold in a quarter. "This isn't an issue about getting information; it is about limiting our risk to selective disclosure," Mr. Todd said. But Jack Ciesielski, the accounting authority and president of R. G. Associates in Baltimore, said: "Sounds like they're wrapping the F.D. flag around them and using it to their advantage. If there's a change in a company's business from one that's pretty straightforward, selling boxes, to something much more stretchy, nobody's being aided by having less information." For instance, Gateway reveals little about what it includes on its balance sheet in "other assets," current or long term. Together, these assets ballooned to $1.53 billion in the third quarter, 20 percent more than on June 30. About half of this figure, Mr. Todd said, is loans the company made to people buying computers. Customers can now get loans from Gateway Bank. It is possible that all of Gateway's customers are creditworthy and that their loans will be paid in full. But Gateway's annual interest rates range from 14.99 percent to 28.99 percent, suggesting that some buyers' credit records may not be sterling. How much is Gateway setting aside as a reserve against loans that might go bad? The company will not say, other than to explain that the loans the company carries on its books are net of reserves. Unlike other companies, Gateway provides no details in its footnotes about how much in reserves it has deducted from the loans. Mr. Todd said the figure is immaterial, and that Gateway takes a very conservative approach to reserves. Baruch Lev, professor of accounting at New York University's Stern School of Business said the amount should be disclosed. "People have to be able to compare it over time and compare it with competitors," he said. "If they don't put it in a footnote, that is in my opinion not good disclosure." Now that Gateway has a big retail presence — 1,052 stores, with plans for 3,000 — will the company start giving same-store sales data, for stores open at least a year? Not anytime soon, it said, arguing that the data is irrelevant because a typical sale involves four visits to its various channels. It is to be expected that Mr. Todd will accentuate the positive at Gateway. His biography on its Web site, for instance, omits his one-year stint as chief financial officer at a subsidiary of Boston Chicken, a restaurant chain that filed for bankruptcy protection in 1998. (He left in 1997.) Asked about the omission, Gateway said on Friday that the information would be added to his biography. Gateway wants investors to rely on it to tell them what is important in their numbers. Wall Street analysts seem agreeable; nobody asked about reserves or loan quality after the earnings report. But in this, the information age, less is not more.

To: Bill F. who wrote (7696)	10/23/2000 2:34:22 PM
From: D. Swiss	Read Replies (3) \| Respond to of 8002

Bii F, I read the GTW article in the times yesterday. I knew exactly where it would be. I knew if anyone would right an article like that it would be her. This is a classic example of how a little knowledge is dangerous. I read the transcript of the the GTW conference call. It is clear that they are rapidly moving toward a model where the hardware is unimportant and they make a ton of money of the software, services, ISP and financing that gets sold with it. The revenue from what they call bundles is 25%, but the profits are 50%+. This is the cell phone model where you make nothing on the phone and a ton of money on the calls. They are moving towards a subscription model where ultimately all or most revenues will be reoccurring. Let me know if you want me to e-mail you the transcript. I don't quite get the connection between Boston Chicken and GTW. If John Todd was only their for a year and was the CFO of a subsidiary, is that suppose to mean he was the cause of their demise? Having said all that, could they be clearer with why other assets are increasing? Yes. :o) Drew