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Gateway Q1 Revenue Off 3.5%, Loss Narrows

Irvine, Calif. — Although first-quarter revenue fell 3.5 percent at personal computer maker Gateway, the company posted a narrower net loss as job cuts and store closings brought relief to the bottom line.

Gateway revenue hit $837.8 million in the first three months, down from $868.4 million in the year-ago period. The year-earlier quarter includes revenue from eMachines, acquired in mid-March of 2004. Revenue loss was due primarily from the closing of 188 U.S. stores in April 2004 and a reduction in Gateway’s consumer electronics offering.

The company reduced its net loss to $5.2 million in the first quarter, ended March 31, which includes expenses of $8 million, primarily for restructuring costs associated with the job cuts and store closings. Also included in the first-quarter net loss are gains of $4 million attributed to legal proceeds and $4 million in a reduction of liabilities. Excluding first-quarter items, net income for the period was $3 million.

The first-quarter loss compares with a net loss of $171.5 million year-on-year, which incorporates a restructuring charge of $104 million and a tax benefit of $13 million.

“As our financial results show, Gateway is on the right track strategically, and our long-term growth plans are credible,” said Wayne Inouye, president/CEO. “We’re focused on markets in which we can make a profit, and we believe we have the right mix of well-designed products and services at a price and quality that represent value.”

Gateway enjoyed strong sales of PCs, selling 941,000 units in the first three months, a 56 percent increase from the same three months in 2004. In the notebook category, a key area of growth for Gateway, unit movement grew about 72 percent in the first quarter year-over-year, with sales up 30 percent in the period.

Gateway’s retail segment delivered revenue of $476 million, with total CE and non-PC revenue down 41 percent year-on-year. The lower numbers are attributed to lower CE revenue, the closing of retail stores and a renewed focus on the core PC business.

Gross margin percentage in the first quarter was 9.6 percent, with no impact from restructuring and other costs. This compares with 12.5 percent in the first three months of last year, including impact from restructuring and other costs.

Expenses in the first quarter, excluding restructuring and other costs, were down 61 percent, compared to the same period in 2004. Expenses as a percentage of revenue were 10.5 percent in the first quarter, compared with 34.1 percent year-on-year. Excluding restructuring charges and other costs, expenses as a percent of revenue in the first quarter were 9.6 percent, compared with 23.4 percent a year ago.