Gateway Reports Record Shipments for the Third Quarter - Three Times Worldwide
Market Growth
(Business Wire 10/22 17:23:35)
Business Editors
NORTH SIOUX CITY, S.D.--(BUSINESS WIRE)--Oct. 22, 1998--Gateway
today reported results for the third quarter ended September 30, 1998.
Gateway shipped a record 887,000 PCs in the third quarter, a 43%
increase over third quarter 1997 shipments of 622,000. Sales increased
21% to $1.82 billion from $1.50 billion a year ago. Net income in the
current quarter was $80.6 million or $.51 per share compared to a net
loss of $107.1 million or a net loss per share of $.68 in the third
quarter of 1997.
"Our strong third quarter unit growth was driven by demand for
our Your:)Ware(SM) program coupled with back-to-school purchases and
our Gateway Country(SM) stores," said Gateway Chairman and CEO, Ted
Waitt. "We also accomplished our goal of building a world-class team
with the addition of several new senior level positions. In July, we
added Maynard Webb as Senior Vice President and Chief Information
Officer; in September, Todd Bradley came on board as Senior Vice
President and Regional Managing Director of our Europe, Middle East
and African operations plus Van Andrews as Senior Vice President of
Gateway Business. With the impending retirement of Dave McKittrick, we
announced this month the addition of John Todd as Senior Vice
President and Chief Financial Officer and a new Senior Vice President
and Regional Managing Director of our Asia Pacific operations, Frank
Smilovic. In under ten months, we assembled a top management team that
will fuel Gateway's growth as we continue to gain market share in both
the consumer and institutional markets."
"In the third quarter, we achieved a record 8.5% of the total
U.S. market share, up 1.8 share points from a year ago," said
President and COO of Gateway, Jeff Weitzen. "U.S. Home market share
grew 2.3 share points to a 14.1% share of the market, based on
DataQuest's market estimates for the third quarter. Clearly, the
quality of our products and services is driving our approval ratings
to record levels. Gateway shipments grew at three times the market and
we achieved a 94% level of brand awareness during the third quarter.
Approximately 75% of Gateway clients who bought a new computer
in 1997 repurchased a Gateway system, the highest brand loyalty
rating in the industry, based on the 1997 Technology User Profile from
ZD Marketing Intelligence."
"Additionally, to better serve small and medium-sized businesses,
we have added dedicated sales representatives in our call centers and
have created business solution centers in our Gateway Country stores.
We have also launched a simple, straightforward program including
Gateway(TM) desktops, portables and servers, targeted for these
business clients. We will continue to focus on these business
initiatives, driving up our share in this valuable market segment.
Demand for the Company's products was consistently good throughout the
quarter; however, we experienced a number of component quality and
shortage problems, which resulted in an increase of over 40% in our
backlog compared to the end of the second quarter," added Weitzen.
Third Quarter 1998 Business Review
The record unit growth of the Company was primarily the result of
the strong performance in the Americas region, accounting for 89% of
total unit sales. Unit sales were also very strong in the Asia Pacific
region despite the economic situation there; unit shipments were up
74% compared to the prior year third quarter. European unit sales were
flat year over year for the same period.
Gateway continued to expand the retail Gateway Country stores
with 27 new stores this quarter, bringing the total number of stores
to 85.
In addition to robust desktop unit sales, the sales of other
products were particularly strong. Sales of Gateway(TM) portable
products hit record high levels in the quarter, up 96% over the prior
year and up 38% over the second quarter of 1998, accounting for 11% of
total unit sales. Server unit sales were up 297% over the third
quarter of last year when the Company entered the business with the
acquisition of ALR. On a sequential basis, server units increased 27%.
Shipments of the Company's convergence products increased 80% over the
prior year third quarter and increased 48% sequentially.
Average unit prices (AUPs) declined 15% to $2,046 in the quarter
compared to last year's third quarter and were down 7% sequentially.
These declines were caused by industry-wide trends to lower priced PCs
and continued reductions in component costs that have not been offset
by the introduction of newer technologies.
Because the strong unit sales were offset by the impact of
declining AUPs, revenues increased 21% compared to the unit increase
of 43% over the third quarter of last year. Revenues in the Americas
region were up 27% and revenues in the Asia Pacific region were up 35%
to $101.8 million over the third quarter of 1997. Revenues from the
European region declined 14% from the third quarter of last year to
$106.8 million.
Gross margins in the quarter were at a record high level of
20.8%, up from 20.6% in the second quarter as the Company realized
benefits from higher margin products encompassed under the Your:)Ware
marketing program, as well as the benefits of the direct model and
decreasing component costs.
Selling, General and Administrative expenses (SG&A) increased 21%
over the third quarter of 1997 to $264.5 million, and increased 6%
over the second quarter of 1998. In both cases the increase in
operating expenses is attributable to the strong unit growth
experienced during the quarter. In support of the continued growth,
the Company also opened a new manufacturing and sales facility in Salt
Lake City late in the quarter. However, as a percentage of sales, SG&A
decreased sequentially to 14.6% of sales compared to 15.4% in the
second quarter. SG&A increased less than previously anticipated by
management due to a continuing emphasis on cost control measures.
Operating income for the third quarter this year was $113.4
million compared to a loss in the third quarter of the previous year
of $24.0 million before nonrecurring expenses. Operating income
increased 35% sequentially over the second quarter. Other income
increased to $12.7 million, up 125 % from the prior year and up 16%
over last quarter due to increased balances of cash and marketable
securities.
Pre-tax income was $126.0 million compared to a loss, after
nonrecurring expenses, of $132.2 million in the third quarter 1997.
The Company's effective tax rate for the quarter was 36%, consistent
with previous quarters this year. The effective tax rate increased
over last year due to shifts in the geographic distribution of the
Company's earnings. Additionally, the abnormally low effective tax
rate experienced in the third quarter of last year resulted from the
non-deductibility of certain nonrecurring expenses.
Working capital management improvements were made again this
quarter. Inventory turns reached another record high for the Company
at 33 turns, which is up from the 12 turns at the end of the third
quarter last year and the 30 turns achieved in the second quarter of
this year. The cash conversion cycle was reduced to almost a negative
4 days. Cash and marketable securities hit a record level in excess of
$1 billion at the end of the quarter.
Business Outlook
The Company expects its growth momentum to continue in the fourth
quarter. Gateway will continue to offer new initiatives to home and
business, bringing the latest technology to all our clients, continue
to invest behind its brand position and open additional Gateway
Country stores. However, there is some uncertainty around the overall
economic climate and the continued pressure on average unit prices.
Waitt commented. "We are entering the peak of the consumer buying
season with excellent brand position, the right products, services and
a team that will continue to propel Gateway's success."
Special Note
The above statements include forward-looking statements based on
current management expectations. Factors that could cause future
results to differ from these expectations include the following:
general economic conditions; growth in the personal computer industry;
competitive factors and pricing pressures; risks relating to acquired
businesses; component supply shortages; and inventory risks due to
shifts in market demand. Additional factors are described in the
Company's reports filed with the Securities and Exchange Commission.
About Gateway
Gateway (NYSE: GTW), a Fortune 500 company founded in 1985,
provides complete computing solutions for clients worldwide. The
company has manufacturing facilities in the United States, Ireland and
Malaysia and employs more than 16,000 people worldwide. Gateway
products and services consistently win top awards from leading
industry publications. Revenue for the year 1997 was $6.3 billion.
For more information, visit Gateway at www.gateway.com.
Gateway, the stylized Gateway logo, Gateway Country and
Your:)Ware are trademarks or registered trademarks of Gateway 2000,
Inc.
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*T
GATEWAY
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in thousands, except per share amounts)
Three months Nine months
ended September 30, ended September 30,
------------------- -------------------
1998 1997 1998 1997
------------ ---------- --------- --------
Net sales $1,815,516 $1,504,851 $5,162,352 $4,316,845
Cost of goods sold 1,437,709 1,309,601 4,114,363 3,595,444
------------- ---------- ---------- ----------
Gross profit 377,807 195,250 1,047,989 721,401
Selling, general and
administrative expenses 264,452 219,258 741,445 570,680
Nonrecurring expenses - 113,842 - 113,842
-------------- ----------- ----------- ---------
Operating income
(loss) 113,355 (137,850) 306,544 36,879
Other, net 12,653 5,612 32,918 20,195
-------------- ------------ ------------ ---------
Income (loss) before
income taxes 126,008 (132,238) 339,462 57,074
Provision (benefit) for
income taxes 45,363 (25,125) 122,206 40,187
-------------- ------------- ------------- --------
Net (loss) income $80,645 $(107,113) $217,256 $16,887
============== ============ ============= =======
Net income (loss) per share:
Basic $0.52 $(0.70) $1.40 $0.11
============== ============ ============= =======
Diluted $0.51 $(0.68) $1.37 $0.11
============== ============ ============= =======
Diluted weighted average
shares outstanding 159,518 156,875 158,708 156,373
============== ============ ============= =======
GATEWAY
CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands)
September 30, 1998 December 31, 1997
----------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents $871,351 $593,601
Marketable securities 132,156 38,648
Accounts receivable, net 559,538 510,679
Inventory 198,016 249,224
Other 183,816 152,531
----------------- ----------------
Total current assets 1,944,877 1,544,683
Property, plant and equipment, net 416,044 336,469
Internal use software costs, net 37,704 39,998
Intangibles, net 69,924 82,590
Other assets 43,252 35,531
================= ================
$2,511,801 $2,039,271
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of
long-term obligations $9,659 $13,969
Accounts payable 677,721 488,717
Accrued liabilities 347,466 271,250
Accrued royalties 114,183 159,418
Other current liabilities 63,977 70,552
----------------- ----------------
Total current liabilities 1,213,006 1,003,906
Long-term obligations, net of
current maturities 2,481 7,240
Warranty and other liabilities 100,025 98,081
----------------- ----------------
Total liabilities 1,315,512 1,109,227
----------------- ----------------
Stockholders' equity
Common stock 1,560 1,541
Additional paid-in-capital 349,101 299,483
Retained earnings 851,766 634,509
Other (6,138) (5,489)
----------------- ----------------
Total stockholders' equity 1,196,289 930,044
================= ================
$2,511,801 $2,039,271
================= ================
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PRODUCT AWARDS FOR THIRD QUARTER 1998
U.S. Industry Publications
Portables
- PC Magazine, Editor's Choice Award, Solo 9100 and Solo 2500
- PC World, Best Buy Award in the Budget Category, two consecutive
months, Solo 2300
- c/net, Editor's Choice Award, Solo 2500
- c/net, Editor's Choice Award, Solo 3100
E-Series
- Windows Magazine, WinList, two consecutive months, E-4200
- PC World, No.2 Best Buy in the Top 20 Budget Desktops, E-3110
- PC World, Top 20 Budget Desktops, E-1000
G-Series
- PC Computing, A-List, High Performance PC, G6-333
- PC World, World Class Award, Best Home Desktop PC, G-Series
- Windows Magazine, WinList, Fastest Performer, G6-400
GP-Series
- PC World, Top 20 Power Desktops, No.1 Best Buy, GP6-400
- PC World, Top 20 Power Desktops, Best Buy Award, GP6-400
- PC World, Top Budget Desktops, Best Buy Award, GP6-300
- CNN Online, Top 10 Home PCs, No.3 Top Power System and No.2 Top
Budget System, GP6-300
- USA Today, Best Buy Award, GP6-300
European Industry Publications
United Kingdom
- Personal Computer World, PCW Awards 1998, Best Direct PC Supplier
- PC Week, Corporate Desktops Best Value, G6-300
- PC Answers, Platinum Award, Solo 9100
France
- PC Professionnel, "the best professional PC," GP6-450
- Generation PC, Best Rate, G6-450XL
- Capital, "the rolls of the mail order," G6-400
Germany
- PC go!, Editor's Choice, Solo 2500
- Computer Bild, Editor's Choice, GP6-300
- PC Praxis, Editor's Choice, G6-400
Asia/Pacific Industry Publications
Australia
- PC Magazine Australia, Editor's Choice - PII Notebooks, Solo
9100XL
- Australian Personal Computer Magazine, Editor's Choice - 400MHz
PII's, G6-400XL
- Australian PC Authority, Honourable Mention for Quality -
Corporate Desktops, E-1000
- PC PowerPlay Australia, 4 Stars, G6-400
- Australian Personal Computer Magazine, Editor's Choice, G6-300
Japan
- Nikkei Personal Computer, No.2 in Desktop Performance, GP6-400XL
- Nikkei Personal Computer, No.2 in Notebook Performance, Solo 9100XL
- Nikkei Personal Computer, No.1 in Notebook Performance, Solo 9100XL
- Nikkei Personal Computer, No.2 in Notebook Performance, Solo 5150LS
- Nikkei Win PC, No.1 in Pentium II Notebook Editor's Choice, Solo
9100LS
South Asia
- PC World-Malaysia, No.1 in Top 5 Power Desktops, G6-333
- PC World-Malaysia, No.2 in Top 5 Power Notebooks, Solo 5100XL
- PC World-Singapore, No.1 in Top 5 Budget Desktops, E3100-300
- PC World-Malaysia, No.2 in Top 5 Power Desktops, G6-400
- PC World-Singapore, No.2 in Top 5 Power Notebooks, Solo 2500XL
- PC World-Malaysia, No.3 in Top 5 Power Desktops, G6-400
- PC World-Singapore, No.1 in Top 5 Power Notebooks, Solo 2500XL
--30--mb/ms*
CONTACT: Gateway, North Sioux City
Media Contact:
Angela Peacock, Corporate Communications, (605) 232-1686
angela.peacock@gateway.com
or
Greg Lund, Corporate Communications, (605) 232-1757
greg.lund@gateway.com
or
Investor Relations Contact:
Marlys Johnson, Investor Relations, (605) 232-2709
marlys.johnson@gateway.com
KEYWORD: SOUTH DAKOTA
INDUSTRY KEYWORD: COMPUTERS/ELECTRONICS COMED EARNINGS
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