Poway, Calif. - Falling sales and profit, blamed on the sluggish economy and restructuring efforts, plagued Gateway in the first-quarter with revenue dropping 15 percent to $844.5 million.
Gateway extended its loss, to $197.7 million in the first quarter, ended March 31, compared with a loss of $123.2 million in the same quarter in 2002. The net loss for the first quarter includes a $78 million restructuring charge.
Gateway said it is continuing to reduce its operating costs and cost of goods sold in support of a $400 million cost reduction program. The company said it remains on target to reduce Selling, General and Administrative (SG&A) expenses by an annualized $200 million a year, and to save more than $200 million in cost of goods sold in 2003.
'Our performance in the first quarter was affected by the weak economic environment as well as our shift to higher value products and services,' said Ted Waitt, chairman/CEO. Waitt, who said Gateway is going through a major transformation of its business, is already seeing results such as stronger sales of mid- to high-end PCs; growth of higher margin, non-PC products; and lower costs.
Last month, the company closed 80 stores and eliminated 1,900 employees, about 17 percent of its workforce. In the past two years, about 10,000 jobs have been eliminated.
In the first quarter, Gateway sold 506,000 PCs, down 22 percent from the 645,000 shipped on a year-over-year basis. The company attributes this to a sharpened focus in its mid- to higher-end PC sales and the evolving integration of its sales and marketing efforts. Average PC price rose to $1,670 in the first quarter, the highest level since the first quarter of 2001, said Gateway.
Sales of non-PC products and services were 24 percent of revenue, up from 20 percent in the first quarter a year ago. A sequential increase of 17 percent was due to sales of retail digital solutions, services and plasma TV shipments, and lower PC unit sales.
Gross margin did improve slightly in the first quarter, rising 30 basis points, to 12,6 percent, from 12.3 percent in the previous quarter. But, year-on-year, quarterly margin remained the same, at 12.6 percent. First quarter SG&A expenses increased to $308 million, including $65 million in restructuring costs, compared with $338 million in the same three months last year.
Gateway, which anticipates returning to a positive operating cash flow by year-end, still expects to reduce annual SG&A expenses in 2003 by $125 million.