Gateway Q4 Revenue Slides 17%, Loss Widens

POWAY, CALIF.— In making the change from primarily a personal computer retailer, to a merchant also offering a growing number of traditional consumer electronics products, Gateway has encountered some stumbling blocks.

Revenue in the fourth quarter dropped 17 percent, to $875.1 million, from $1.1 billion in the year-ago period. The company's net loss widened to $111.3 million, from a $69.2 million loss the previous year. The current quarterly loss included restructuring charges of $41 million and a tax provision of $24 million.

Last year, Gateway decided to counter declining PC revenue and continuing negative quarters, with the introduction of a line of CE products. These include flat-panel televisions, digital cameras, handheld computers and other products that link to PCs. Following this change, the company reported a 39 percent fourth quarter rise in non-PC consumer electronics revenue, to $268 million.

CE revenue, alone, rose to $102 million in the fourth quarter, ended Dec. 31, up 169 percent year-on-year and 60 percent sequentially. CE revenue as a percent of total revenue climbed to 12 percent, an increase of 4 percent year-over-year and 7 percent sequentially.

Disappointing Gateway holiday sales in the fourth quarter, in part, were due to shortages of such CE products as 42- and 50-inch plasma TVs, and also reduced supplies of its Media Center PCs, said the company.

Gateway reported sales of 526,000 PCs in the fourth quarter, a decline of 27 percent from the same three months a year earlier. Its shrinking number of retail locations and ramped-up promotional pricing for notebooks and low-end desktop PCs contributed to the holiday downswing.

Despite an increasingly hostile CE retail environment, encountered when both Dell and Hewlett-Packard entered the business, to go along with an already fiercely competitive PC business, Gateway continues to streamline for the long haul.

"With the progress Gateway has made in transforming into a branded integrator, we have established a strong, solid base to build on," said Ted Waitt, chairman/CEO. "We have stabilized revenue, improved margins and sharply cut costs."

The company, which said PC revenue accounted for 69 percent of sales, down from 82 percent a year ago, has trimmed full-year overall costs by $260 million, ahead of the $200 million corporate objective.

It also claims to have exceeded its full-year expense-reduction target, achieving $150 million in savings, compared with the annualized rate in the fourth quarter of 2002.

For the 12 months, Gateway recorded revenue of $3.4 billion, down nearly 20 percent from the $4.2 billion notched the previous year.

Net loss for the year came to $514.8 million, compared with a net loss of $297.7 million in the prior-year period. Included in the loss was $215 million related to restructuring costs.