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Gateway Q3 Revenue Climbs 3.7%, Loss Drops

San Diego — With the purchase of eMachines last spring under its belt, PC maker Gateway reported third-quarter revenue of $915.1 million, a 3.7 percent increase over the $883.1 million recorded in the year-ago period.

Gateway’s higher eMachines-driven sales in the three months, ended Sept. 30, also helped the company reduce its net loss by more than half. Net loss for the third quarter reached $56.5 million, down from a loss of $136.1 million in the same three months in 2003. Restructuring charges of $63 million were included in the quarter’s results, while the same three months last year produced restructuring charges of $73 million.

Excluding the $63 million in restructuring charges, Gateway said it would have posted a profit of $4 million in the third quarter, the company’s first operational profit since the fourth quarter of 2001.

“In the third quarter, executing on the basics led to accelerated cost savings and gross margin improvements,” said Wayne Inouye, president/CEO. During the most recent three months, Gateway said it had made significant progress in transforming its business model, simplifying processes, increasing productivity and expanding distribution of its products worldwide.

Gateway reported PC sales of 931,000 units in the third quarter, a 67 percent increase year-on-year. The rise is largely attributable to the merger with eMachines. A 17 percent increase in PC unit sales over the second quarter of this year is due to strong consumer demand and the successful launch of Gateway-brand PCs at major U.S. retailers.

The company’s retail segment accounted for third-quarter revenue of $408 million, with PC units at 607,000. Retail revenue climbed 33 percent and PC unit increases were up 32 percent, compared with the second quarter.

Total consumer electronics and non-PC revenue was down 23 percent from the same three months a year earlier, but rose 2 percent over the previous quarter. The year-over-year declines were due to lower CE product sales, largely associated with the elimination of company-owned retail stores last spring. The sequential quarter increase was due to higher stand-alone monitor sales, partially offset by lower CE revenue.

Gateway CE and non-PC sales represented 20 percent of total revenue in the third quarter, compared with 27 percent in the same three months in 2003, and 22 percent in the preceding quarter.

Gross margin contribution from CE and non-PC products and services represented 60 percent of gross margin dollars in the third quarter, compared with 65 percent a year ago and 76 percent in the prior three months.

Gross margin percentage in the third quarter rose to 10.1 percent, nearly flat with the 10.1 percent reported in the third quarter the previous year. Expenses decreased to $153.8 million in the third quarter, down from a year-ago $229.5 million.

For the nine months, Gateway sales moved up to $2.6 billion from $2.5 billion in the same period last year. The net loss over the nine months this year widened to $561 million from a year-ago $403.5 million.