To: Dale Baker who wrote (7809 ) 7/23/2001 2:46:17 AM From: Dale Baker Read Replies (1) | Respond to Gateway (GTW) 10.95 -3.64: After last night's second quarter earnings report, investors have reached the conclusion that Gateway is not the gateway to prosperity as far as investments go. You know the movie Dumb and Dumber? Well, Gateway's report could have been entitled Dim and Dimmer. Not only did Gateway come up short of the consensus EPS estimate by a penny in posting a loss of $0.02 per share, its sales of $1.5 bln also fell shy of the consensus revenue estimate of $1.89 bln. Worldwide unit sales of 923,000 were down 21% yr/yr as its key U.S. Consumer business posted a 36% decline in unit sales. The story wasn't any better with its international operations as units declined 46% yr/yr in Europe and 36% in Asia Pacific. Those were some of the dim details of the Q2 report, but the dimmer aspect of the report was Gateway's guidance. Not only did Gateway disappoint investors with its expectation that it would be approximately break even on a pre-tax income basis, excluding special charges, for 2H01, it disappointed investors with the announcement of more restructuring efforts that simply underscored the company's confused state. Investors will recall that when Ted Waitt returned to the CEO post in February, Gateway said it was going to return to its roots by emphasizing the sale of computers and providing superior customer service. Prior to that, GTW had become focussed on driving profitability through a beyond the box strategy that dealt with services such as training, financing, and ISP agreements. Gateway now says it is "embarking on a significant acceleration of its strategic shift to transform the company from a traditional manufacturer of PCs to a leading provider of personalized technology solutions... and [that] this acceleration starts immediately." As part of that plan, its U.S. Consumer and Business units will be consolidated into one U.S. Markets organization. Consequently, more layoffs can be expected. The bigger problem, though, is that investors really don't know what to expect from Gateway at this point. One can only hope its restructuring will take root and that worldwide PC demand will rebound in short order. Even if the latter does, there are legitimate concerns that Gateway won't be ready for it. The company has plenty of promise, but it is in a state of flux now that is too perplexing to give it the benefit of the doubt. Given GTW's depressed state, and its relatively high profile, we would certainly expect a trading rally here and there, but until the market is comfortable that Gateway has found itself, signs of strength are apt to be viewed as a selling opportunity.-- Patrick J. O'Hare, Briefing.com
