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Gateway Moves Into The Black

Irvine, Calif. — Healthy sales of personal computers lifted second quarter sales at Gateway 4.2 percent, hitting $873.1 million, up from a year-ago $837.6 million.

The company said it sold a bit more than 1 million PCs during the three months, a 27 percent rise year-on-year from the 795,000 sold in the same three months last year. It said the increase was due to market-share increases in its retail unit.

Gateway posted net income of $17.2 million in the second quarter, ended June 30, compared with a year-earlier loss of $335.8 million. It was the company’s first profit in over three years. The latest quarter includes restructuring charges of $1 million, compared with $289 million in the second quarter last year, and $15.1 million in benefits, related to an April 2005 settlement with Microsoft.

In the notebook category, unit sales climbed about 62 percent year-over-year, while Gateway’s overall retail segment delivered revenue of $490 million, with PC units at 750,000. Retail revenue rose 3 percent from the first quarter, with PC unit movement increasing 4 percent in the same time frame, said the company.

Total non-PC revenue, which includes sales of software and peripherals, services and accessories — in addition to consumer electronics products — was down 9 percent in the second quarter, compared with the same three months the prior year. The company pinpointed the year-over-year decrease as a result of lower CE revenue, largely associated with the Gateway retail store closure in April and the completion of excess CE inventory sales primarily in the second and third quarters of 2004.

Non-PC sales represented 19 percent of total revenue in the second quarter, which compares with 22 percent a year earlier.

Gross margin percentage in the second quarter was 10 percent, compared with 1.9 percent year-on-year, which included 7.3 percent of restructuring, transformation and integration costs. Expense in the second three months was $85 million, including the $1 million in restructuring costs, compared with $354 million, including $228 million in restructuring costs, the prior year period.

Gross margin contribution from non-PC products and services represented 73 percent of gross margin dollars in the second quarter, compared with 75 percent in the same three months last year.

At the same time Gateway reported its best quarter in recent memory, the company said increased pricing and component-cost pressures would cut into full-year earnings and revenue. However, Wayne Inouye, president/CEO, remained buoyant. “While we have much work to do, we continue to believe we have a model of operational efficiency and customer intimacy that is a winner over the long term,” he said.

For the six months, sales were about flat at $1.71 billion. Net income in the first half was $12 million, compared with a loss of $504.5 million in the same period in 2004.