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Gateway Q2 Net Loss Grows

Poway, Calif. – Gateway posted a $73 million net loss on sales of $800 million for its second quarter as the company continues its migration from a computer-centric manufacturer/retailer to a seller of PC and CE products.

Gateway’s second quarter, ended June 30, figures were an improvement over its performance during the first quarter when it lost $200 million on sales of $844 million. However, in 2002 the company lost $61 million on $1 billion in sales. Company executives credited the increased sale of higher margin non-computer product sales for the improved financial performance and other cost savings from the first quarter of 2003.

First half results had Gateway generating a net loss of $273 million on sales of $1.6 billion. This was up from the $187 million loss on almost $2 billion in sales the company endured during the first half of 2002.

‘We’re pleased with the progress we’re making in transforming from a traditional PC company to a branded integrator,’ said Ted Waitt, Gateway’s chairman and CEO.

This progress could be seen during the second quarter by the 4 percent increase in non-PC revenue. Gateway reported that 28 percent of all revenue came from this category during the quarter. Its stated goal if for non-PC products to eventually generate 40 percent of sales.

To help meet this goal the company introduced four flat-panel TV SKUs last week. The new 50-inch HDTV and 46-inch enhanced definition plasma models will join the company’s current 42-inch set. The 50-inch unit will carry a $6,999 suggested price tag and features PIP, and 1,366 by 768 resolution, 600 to 1 contrast ratio and became available from Gateway’s online, direct and Country Store operations on July 24. The 46-inch model has a $3,799 suggested retail price and became available through the Country Stores starting July 25. It features 852 by 480 resolution, 800 to 1 contrast ration and the entire casing is 3.5-inches thick and has about 20 percent more screen area than the company’s currently selling 42-inch set.

The introduction of the LCD TVs marks Gateway’s entry into this category. The 18-inch, $899 suggested retail price, model is intended for use in bedrooms and kitchens. It features 1,024 by 768 resolution, 350 to 1 contrast ratio and it has multiple video inputs including PC analog, s-video, TV/CATV, composite and component. The unit is now available through all of Gateway’s channels. The 17-inch LCD offers slightly higher resolution 1,280 by 768 and a 600 to 1 contrast ratio. It will become available in August with a $799 suggested retail price.

The company also reported that it sold 490,000 PCs during the quarter, about 25 percent fewer then during the same period last year and down 3 percent from the first quarter of 2003. The year over year decline was attributed to the closing of 70 retail stores during the first quarter and because the company had shifted away from pushing quick selling entry-level models in favor of higher-end units.

The company will reverse this trend in the next few weeks, it reported, when it again rolls out a new low-end desktop PC line. Gateway hopes this maneuver will help bring its PC sales operation back into the black.

In a forward-looking statement, the company is expecting third quarter revenue to be in the $874 million range, increasing to $954 million the following quarter. A loss for each quarter of $0.19 and $0.09 per share, respectively, is anticipated.