Gateway’s Q4, 2006 Financial Results ‘Mixed’

By Doug Olenick -- TWICE, 2/9/2007 8:36:00 AM

Irvine, Calif. — Gateway reported what it called mixed financial results for the fourth quarter and 2006 and said it would cut $20 million from its expenses in the coming year.

Gateway CEO Edward Coleman listed several reasons for the company’s performance, including component supply constraints, inventory preparation for the launch of Microsoft’s Vista operating system, and the ongoing realignment of the company’s business and consumer direct segments.

“While we continue to face a number of challenges, I believe cost structure and process improvement initiatives launched in the fourth quarter, combined with continued product innovation, strong customer relationships and an increased focus on the consumer market will enable Gateway to deliver improved financial performance in 2007,” Coleman said.

Gateway posted a net income of $8.8 million on sales of $1 billion for the fourth quarter, ended Dec. 31, 2006, up from the $20.1 million loss on $1.1 billion in sales generated during the same period in 2005. The company’s bottom line was boosted by a one-time net tax benefit of $11.8 million during the quarter.

For the year Gateway’s net income was $7 million on $4 billion in sales, up slightly from the $6.2 million profit made the prior year on sales of $3.9 billion.

Gateway said it shipped 1.3 million PCs during the fourth quarter, 10 percent more then the prior quarter and 5 percent higher then the fourth quarter 2005. The retail segment was responsible for the vast majority of the company’s fourth quarter PC sales, 1.2 million units. This figure was up 18 percent compared to the prior quarter, but down 2 percent year-over-year. Coleman blamed the year over year fall off on slow sales caused by consumers putting off PC purchases until Vista went on sale Jan. 30 and component shortages.

Gateway’s direct PC business suffered a large falloff for the quarter compared with 2005. The company said it sold 40,300 units direct, a 26 percent drop from 2005, but up 16 percent from the previous quarter. The drop was explained away as the result of a change in marketing strategy and product to focus on more full-featured solutions and to reduce retail channel conflict.

Gateway endured a great deal of stockholder pressure with two groups attempting to force the company to change its business practices. Most recently a shareholder group has forced its way onto the company’s board of directors.