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Gateway Cuts Jobs, Mum On Stockholder Request

11/03/2006 11:29:00 AM Eastern

Irvine, Calif. — Gateway did not release any news regarding the most recent demands by a stockholder group led by Firebrand Partners, but it did announce during its third quarter financial conference a minor round of layoffs had taken place.

The company said its board of directors is still studying Firebrand’s demand that it be allowed to place three people onto Gateway’s board. In an SEC filing dated Oct. 26, Firebrand threatened to “pursue these matters on our own, through the calling of a special meeting or otherwise,” and had given Gateway’s board an Oct. 31 deadline to respond. However, it has not made any move, even with the deadline passing.

Gateway executives did not give an exact number for how many workers were cut, but it expects the move to save the company between $30 million and $35 million per year.

The company posted third quarter results, ended Sept. 30, of a net income profit of $18.2 million on revenue of $963 million. Revenue was down compared to the $1 billion generated last year at this time. The net income for the quarter was given a large boost from an $8.1 million influx from income taxes.

Gateway’s retail segment portion of the revenue was $626 million, up 4 percent from 2005 and 6 percent from the 2006 second quarter. The retail segment was responsible for selling 946,000 of the 1.2 million computers sold during the quarter and margin increased slightly to 4.2 percent from 3.7 percent in the prior quarter. This was attributed to notebooks, and their higher margin, comprising a greater share of the company’s product mix.

Gateway also chopped several days off its inventory level holding about 13 days worth at the end of the quarter, compared to 16 days at the end of the second quarter.

Non-PC retail products, which includes stand-alone monitors, peripherals and software, contributed 16 percent of the company’s total revenue, down 1 percent from the 2005 third quarter and about flat with the second quarter.

Gateway CEO Ed Coleman said the direct side of the business has not yet seen the financial benefit of the company’s strategy of focusing its high-end PC sales through this channel. For the quarter direct sales delivered $75 million in revenue, down 44 percent from the same time last year and 3 percent from the previous quarter. The direct segment shipped 35,000 units down 51 percent from 2005.