Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Earlie who wrote (44259)	1/21/1999 11:51:00 PM
From: Peter Singleton	Read Replies (2) \| Respond to of 132070

Earlie, thanks for posting your thoughts upon sifting through the GTW numbers. There's another, easier interpretation the data would support. The PC market may not be slowing down, at least not to the extent you expect. I would just as soon the PC market slowed some, because it could prick the Nasdaq bubble and bring some reality back to equity valuations ... the longer, and higher, it goes, IMO, the worse the correction. But so far I don't see data that supports a flat revenue US in 1998, or flat units / declining revenue US in 1999 ... btw, I don't have the data sources (published and unpublished) you or Fred Hickey has. I'm just going by the stuff I've seen posted on threads like MB's. Peter

To: Earlie who wrote (44259)	1/22/1999 11:54:00 AM
From: yard_man	Respond to of 132070

Thanks for your quick take on the numbers for GTW ...

To: Earlie who wrote (44259)	1/22/1999 2:06:00 PM
From: Peter Singleton	Read Replies (2) \| Respond to of 132070

Earlie, FWIW, a bullish take on GTW's earnings, from Motley Fool, as posted on the Dell thread on SI ... btw, as I've mentioned, I don't know enough yet to have a strong opinion either way whether PC sales are slowing down. From what I've seen, though, I don't see data supporting a sharp decline starting Q4 ... Peter Gateway Q4: It Gets Even Better ============================= Gateway 2000 Inc. (NYSE:GTW - news) inched ahead $1 to $59 this morning after posting very impressive fourth quarter results last night after the bell. The North Dakota PC company reported fourth quarter revenues of $2.31 billion, up 16.6% year-over-year. EPS grew 37%, however, as gross profit shot up 40.3% and gross margin expanded 3.65 percentage points year-over-year and 80 basis points sequentially. That allowed the company to expand sales, general, and administrative expenses by 44.1% and still bring about a 34.5% increase in operating profit. Paying attention here to absolute dollar spending and gross profits available for operating expenditures is more instructive than looking purely at SG&A expenses as a percentage of sales. Looking at operating income, the quality of these earnings is very high and speaks to a number of accomplishments at Gateway this year. First, the company's Gateway Country Stores concept is quite interesting. Though the connotation might be cheesy, the Gateway stores could be compared to a catalog showroom, where inventory investment in demonstration models per square foot is minimal and sales per square foot are incredibly good. These stores will also be the base for a number of outbound salespeople targeting small- and medium-size businesses. Productivity gains were driven by four key factors, some straight blocking and tackling and some strategic: 1) Better pricing discipline across product line; 2) recutting some contracts and holding vendors to contract prices; 3) better job at manufacturing execution, reducing waste and increasing margins; and 4) better product mix. The better product mix is one of the most attractive features of Gateway and harkens back to the days of Dell (Nasdaq:DELL - news) richening its product mix and thus growing profits and cash flow much faster than the rest of the industry. This quarter, Gateway's average unit price declined only 2% sequentially versus 9% for the rest of the industry, according to Gateway. On an annualized basis, that's a big difference and points to solid performance in increasing sales of portables and servers. Asset management also improved greatly once again. Inventory investment was negative sequentially and was even better year-over-year. For the year, inventory investment was negative $81.3 million, coming from a quarterly improvement in inventory turns for three out of the four quarters this year. Quarterly inventory turnover (annualized): Q1: 25.6 Q2: 30.2 Q3: 32.6 Q4: 39.5 source: Motley Fool data Through three quarters, net cash flow from operations equaled 228% of net income. For the fourth quarter, based on our look at the data, that trend accelerated, with cash flow from operations for the year equaling around 275% of net income. Return on invested capital flows from the basic fact that invested capital was flat sequentially (treating 5% of revenues as required cash) while after-tax operating profit was up 65.5%. That resulted in a return on capital performance of 79%, annualized for the quarter, up from a still very strong 48% last quarter. With excellent fundamentals as far as strategy, products, and production and financial execution go, the company's valuation is way too low at a multiple of less than 9 times enterprise value to net cash flow from operations.