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Gateway Retail Sales Soar 61%

4/28/2006 08:12:00 AM Eastern

Irvine, Calif. — The Gateway retail segment, which include the company’s international sales, posted revenue of $767 million in the first quarter, up 61 percent year-on-year, but down 3 percent in sequential quarters.

Gateway shipped 1.2 million PC units in the first quarter, ended March 31, a 62 percent year-over-year jump and a 3 percent sequential quarter increase.

The 3 percent drop in sequential revenue reflects lower average unit prices that were mitigated by strong market share gains, said the company. The year-on-year revenue increase reflects strong market-share gains at U.S. retail, including growth in Gateway’s international business.

Gateway said its products and eMachines products now are sold in more than 7,000 retail locations in North America and more than 2,500 retail stores internationally.

Total non-PC revenue — which includes sales of stand-alone monitors, software, peripherals, accessories and services — rose 21 percent year-over-year, but slipped 15 percent in sequential quarters. These figures exclude consumer electronics, said Gateway. The year-in-year increase reflects strong sales of stand-alone monitors, particularly those sold at retail.

Non-PC sales, excluding CE, represented 17 percent of total revenue in the first quarter, which compares with 19 percent in the fourth quarter and 18 percent in the same three months last year.

Gross margin from non-PC products and services, excluding CE, was off 12 percent sequentially and down 8 percent form a year ago.

The direct sales segment accounted for $109 million in revenue in the fourth quarter, moving 98,000 PC units. Revenue was down 6 percent sequentially and 27 percent year-over-year. PC units were flat sequentially and dropped 23 percent year-on-year.

Consolidated Gateway revenue increased 29 percent in the first quarter, hitting $1.08 billion, up from $837.8 million in the year-ago three months, but down from the $1.12 billion reported in the fourth quarter.

The company recorded a first-quarter net loss of $12.3 million, more than double the $5.2 million loss in the same quarter in 2005. The loss in the fourth quarter of last year reached $20.9 million.

The current quarter’s loss includes $14 million in litigation expenses, while the prior quarter’s operating results included a one-time $16.7 million charge for a settled agreement with Hewlett-Packard and a $26.6 million charge related to a prior year’s tax liability dispute, of which $24.8 million was recorded as an expense.

Gross margin in the first quarter was 7.3 percent, compared with 6.2 percent in the prior quarter and 9.6 percent in the first quarter a year earlier. The sequential increase in gross margin is due primarily to the $16.7 million charge in the fourth quarter, said Gateway.

“In the first quarter, our retail business unit, which also includes our international sales, continued to perform very well in terms of both sales and margin,” said Rick Snyder, chairman and interim CEO. “Unfortunately, our positive retail results were partially offset by losses in our professional sales unit. As a result, we essentially broke even in the quarter, prior to litigation expenses of $14 million.

The company’s problems in its professional and direct segments were said to be responsible for the departure of CEO Wayne Inouye last February.