Gateway Slashes Jobs in Worldwide Revamp
SAN DIEGO (Reuters) - Beleaguered personal computer maker Gateway Inc. (NYSE:GTW - news) said on Tuesday it will cut about 25 percent of its worldwide work force, take a $475 million third-quarter charge, and close operations around the Pacific Rim and possibly Europe.
Gateway, embroiled in a price war led by rival Dell Computer Corp. (Nasdaq:DELL - news), said it was shutting its company-owned operations in Japan, Australia, Malaysia, New Zealand, and Singapore. It said the third-quarter charges include about $200 million for the possible exit from Europe.
``They are a broken company. They have a lot of significant challenges ahead. So, the jury is going to be out for a while,'' said Eric Rothdeutsch, an analyst with Robertson Stephens.
``The PC market is weak and they are a weak player in the PC market. It's a game of survival for Gateway,'' he said.
With the possible European exit, the job cuts would total about 4,600 out of its worldwide work force of about 19,000, a company spokeswoman said. Excluding Europe, the cuts would total about 3,500, she said.
``Gateway did not have any traction in any of those geographies anyway,'' said Ashok Kumar, analyst with U.S. Bancorp Piper Jaffray.
The No. 4 PC maker in the U.S. market also indicated that its results for the rest of the year would be roughly in line with Wall Street expectations, albeit slightly lower than the company's previous forecast.
The shares of the company, which had closed up 10 cents, or more than 1 percent, at $8.60 on the New York Stock Exchange (news - web sites), rose to $9.40 in after-hours trading, according to Instinet.
The stock has underperformed the American Stock Exchange computer hardware index by 34 percent this year. Shares fell steeply in mid-July, when the company reported a second-quarter loss and executives said they saw no quick turnaround.
Gateway has been hit hard by the PC price war with rivals Dell, Compaq Computer Corp. (NYSE:CPQ - news) and Hewlett-Packard Co. (NYSE:HWP - news).
Gateway does not even rank in the top 5 in market share figures for worldwide sales of PCs, and had a 7.4 percent share of the U.S. market in the second quarter, according to Gartner Dataquest.
The PC-maker said it was cutting about 15 percent of its U.S. work force and would close call centers in Hampton, Virginia; Vermillion, South Dakota; Salt Lake City; and Lake Forest, California. The company also said it would be shuttering its manufacturing plant in Salt Lake City.
Gateway said it expected to report a slight third-quarter loss on a pretax income basis, excluding special charges, while returning to profitability on a pretax income basis for the fourth quarter.
The company said it expected to be marginally profitable for the entire second half of 2001 on a pretax basis, excluding special charges.
Wall Street analysts have been expecting the company to post a third-quarter loss of 1 cent a share, according to Thomson Financial/First Call, a fourth-quarter profit of 3 cents and a full-year loss of 1 cent a share.
``I think it's reaffirming, there's no real change. It's a little worse for Q3,'' Rothdeutsch said.
The company also said it expected domestic unit volume to increase sequentially during the third and fourth quarters.
The $475 million in charges includes cash and noncash charges of $150 million and $325 million, respectively.
The company said it expected its restructuring moves to save it about $300 million in costs and expenses annually.
``Their cost structure is completely out of alignment, and remains so even after this restructuring,'' Kumar said. ''Operating expenses have grown 25 percent per year since 1996, compared to revenue growth of 17 percent. And with about 300 stores still functioning, the company still carries overhead to the tune of $300 million.''
Gateway also said it expects to end the year at about its current level of cash and marketable securities of $1 billion.
Known for its cow-pattern boxes, Gateway said it was organizing itself along six lines of business -- hardware, communications, applications, learning, financing, and services.-----
HP should be next...they are already slashing printer prices...
Dell and Intel will just continue to have a series of one time charges for restructuring while doing great! While the Analysts protect there sacred cow.
lol...
Jim |
