Gateway: wider losses for Q1, 2002
By Chris Kraeuter, CBS.MarketWatch.com
Last Update: 9:08 PM ET Feb. 27, 2002
POWAY, Calif. (CBS.MW) -- Gateway expects losses throughout 2002 as it wages a price war with competitors in an effort to gain back market share, the computer maker said late Wednesday.
For the first quarter ending in March, Gateway said it expects a pre-tax loss, excluding charges, of $100 million to $120 million, or 18 cents to 24 cents a share, on revenue of $940 million to $1 billion.
Analysts surveyed by Thomson Financial/First Call had been predicting a loss of 8 cents a share on revenue of $1.06 billion, on average.
Gross margins are expected at 14 percent to 15 percent. Also, the company confirmed it will record a charge of $75 million to $100 million due to previously announced restructuring actions.
For the full year, pre-tax losses excluding charges are expected to range between $200 million and $250 million, or 39 cents to 49 cents a share, on revenue of $4.5 billion to $5 billion. Analysts had been expecting a loss of 17 cents a share on revenue of $4.6 billion.
During an annual analyst meeting, Chief Financial Officer Joe Burke said he expects the company to turn profitable again in 2003.
Shares of Gateway (GTW: news, chart, profile) ended Wednesday's regular session down 33 cents to $5.10.
Also, the box maker said the majority of its restructuring actions are complete. On Jan. 24, Gateway announced it would close 19 Gateway Country stores and cut 2,250 jobs.
Retail wrinkles
As for the remaining 277 stores, Burke said they are "tremendously underleveraged. Our first and foremost goal is to build those stores."
He said that there will be a broadening of the product line, more emphasis on in-store training programs and greater importance placed on sales to small businesses. The company also plans to stock software that can be bought separately, as well as digital cameras and hand-held devices.
In the U.S., Gateway is competing with larger rivals Dell (DELL: news, chart, profile), Compaq Computer (CPQ: news, chart, profile), and Hewlett Packard (HWP: news, chart, profile).
According to a recent Gartner Dataquest survey, Gateway was fourth in market share, based on unit shipments, with 7.4 percent in 2001. Dell commanded 24.5 percent while Compaq had 12.5 percent and H-P had 10 percent. IBM (IBM: news, chart, profile) commanded 5.7 percent of the market last year.
Taking the longer-range view
Burke said Gateway's breakeven level is currently at 900,000 to 1 million units sold per quarter. During the previous quarter, the company sold 681,000 units but posted a profit as it focused on high-end computer sales.
After posting that profit, executives said Gateway would incur losses for several quarters as they focused on a broader spectrum of computers.
"We've regained value leadership in our core products since we went to our new pricing strategy and are bucking seasonal sales trends," said CEO Ted Waitt. "This year, our objective is growth -- we'll continue to drive growth rates that are better than the industry average and as a result, Gateway will return to long-term, sustainable profitability and gain share in our target markets."
Earlier on Wednesday, Eric Rothdeutsch, analyst with Robertson Stephens, acknowledged that Gateway had cut its prices but that it had also stopped sales promotions.
He said the company isn't any more competitive than it was before it renewed the price war, which it commenced at the end of January. "We expect them to continue to lose market share," said Rothdeutsch while delivering a presentation about hardware and semiconductor companies.
Chris Kraeuter is a reporter for CBS.MarketWatch.com in San Francisco. |
