I thought I paste this article here in case it got deleted after awhile. Also my memory can not keep track of all the events happening these days.
Nov.20 GTW said it was comfortable with Q4, Nov.29 it warned of slow post holiday sales, from est. 64c to 37c. Jan.11 GTW missed its Q4 low est, reported 12c.
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By Lisa Sanders, CBS.MarketWatch.com
Last Update: 4:12 PM ET Nov 30, 2000
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SAN DIEGO (CBS.MW) -- Shares of personal-computer maker
Gateway tumbled 36 percent Thursday after the company said it would
not meet Wall Street's fourth-quarter earnings estimates because of
weaker-than-expected holiday sales of PCs.
Gateway (GTW: news, msgs) shed $10.50 to close at $19, setting a new
52-week low after reaching its previous 52-week low of $22.25 on
Wednesday. On Thursday, the stock touched an intraday low of $17.49.
Gateway's troubles directly affected other PC manufacturers such as Dell
(DELL: news, msgs) , IBM (IBM: news, msgs) , Hewlett-Packard
(HWP: news, msgs) and Apple Computer (AAPL: news, msgs) . All
were trading lower Thursday. The stocks pressured the Goldman Sachs
Computer Hardware Index (GHA: news, msgs) , which fell 23.43 to
close at 401.65.
Following Gateway's earnings warning late Wednesday, ING Barings;
Gerard, Klauer Mattison & Co.; Prudential Securities; Banc of America
Securities; Salomon Smith Barney; and J.P. Morgan cut their
recommendations on the stock, adding to its weakness.
Merrill Lynch said before the announcement that it did not expect any
upside surprise in Gateway's fourth quarter.
"Starting with this quarter, we would have had much better performance if
the overall economic climate was better," said Jeff Weitzen, the chief
executive of Gateway, in a conference call. "The good news is because of
our direct model we're not setting ourselves up for future cost issues."
Nineteen analysts polled by First Call had expected the computer
company to earn, on average, 62 cents a share in the fourth quarter.
On Nov. 20, Gateway responded to a downgrade from Wit SoundView
by saying that PC sales and other products and services were "ramping at
expected levels," and that the company was comfortable with
fourth-quarter and full-year consensus earnings estimates and revenue
guidance. Wit SoundView analyst discusses the downgrade and future
outlook for Gateway.
"At the time, that was true," said John Spelich, a spokesman for Gateway.
"You can't fight an decrease in worldwide consumer demand, and we
didn't have the visibility until the Thanksgiving weekend."
At the end of the third quarter, non-PC income was more than 50 percent
of total income, according to Gateway.
In Thursday's call, Gateway's chief financial officer, John Todd, said that
the company did not see the expected post-Thanksgiving spike it typically
experiences. PC revenue was down 30 percent in a year-over-year
comparison on the Friday following Thanksgiving, Todd said.
A key weekend
"We're relying on one weekend in order to keep you guys up to speed on
where we stand," Todd said. "We haven't gotten that spike up, and that's
what we're basing our projections on."
The company, which called its guidance conservative, said it expects to
report revenue of about $2.6 billion for the fourth quarter, comparable to
the year-ago period and $500 million less than estimates. Gateway also
expects to report operating income of "at least" 37 cents per share, well
below the analyst forecast.
Gateway said it would take a one-time charge of approximately $200
million, or 39 cents per share, related primarily to the write-down of the
company's investments in technology-based companies and other assets.
Adding to the downside, Gateway said it could report a loss of 2 cents a
share for the fourth quarter "assuming there is no upside to the adjusted
earnings guidance."
For the year, Gateway expects 25 percent net
income growth, which it called a benchmark
for the industry and reflects the company's
"beyond the box" strategy, Weitzen said.
Looking ahead
The company said it expects lower earnings per share for 2001. Gateway
projected $1.89 a share for the full year 2001 vs. the previous consensus
estimate of $2.28. Gateway projected $2.9 billion in revenue in both the
third and fourth quarters of 2001.
Todd noted that it's possible that PCs are becoming more of mainstream
appliance rather than a specialty item, thus reducing some of the seasonal
effects on sales, Spelich pointed out. The prediction is bolstered, he said,
by the revenue forecasts for the third and fourth quarters of 2001.
Gateway competes with, among others, Dell Computer (DELL: news,
msgs) , which also sells direct to clients. Dell is more heavily focused on
the corporate side, while Gateway sells more to consumers.
Todd also said Gateway expects an 8 percent decline in PC sales in the
first quarter and flat sales for the balance of the year. Nevertheless, Todd
said the company expects to maximize its market share in 2001 in the
consumer space.
"We will make tradeoffs and be more focused," Todd said. Gateway
characterized its products as competitively priced.
Weitzen also said the company does not have plans to scale back on the
rollout of Gateway Country stores.
Jeff Brown, a principal at London, Ontario-based High Street Asset
Management, which owns shares of Gateway, said the company's
warning wasn't a surprise.
"This shouldn't be a surprise to anyone, with all the industry statistics
pointing to a softening in the PC market," Brown said. "A lot of people
own Gateway because it has a lot of non-PC revenue, and for a while
people have taken solace in that."
That fact will soon be irrelevant, and the shares will take a beating, Brown
predicted. Brown said he intends to hang on to his holdings in Gateway.
"People latch on to the bad news," he said. "The growth rate is
decelerating, not disintegrating, and we're going to get good growth."
On Nov. 14, Todd told CBS.MarketWatch.com that the company was
becoming less focused on PC sales. See full story. |
