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Gateway Q3 Revenue Declines 21%, Loss Widens

Poway, Calif. – Even with Gateway’s recent efforts to shore up its sagging computer business by venturing into the sale of such hot CE products as flat-screen televisions and digital cameras, it still posted lower sales and earnings in the third quarter.

Revenue decreased 21 percent, to $883.1 million in the three months, ended Sept. 30, down from $1.1 billion in the same quarter in 2002. At the same time, the company nearly tripled its net loss, to $136.1 million, compared with a loss of $46.9 million in the third quarter of last year. Including restructuring charges and expenses of $73 million in the third quarter, Gateway posted a loss of $63.3 million.

‘In the past six months, we have dramatically changed virtually every part of our business, including our product line, our retail network and the way we source, ship, service and support our products,’ said chairman/CEO Ted Waitt. ‘These efforts are paying off with dramatic cost reductions, increased efficiencies and the strongest product line in our company’s history.’

Despite all the changes, Gateway still expects to post a fourth quarter loss, with restructuring charges ranging between $50 million and $60 million. Revenue for the holiday period is anticipated at $925 million to $975 million.

CE revenue increased to $251 million in the third quarter, up 43 percent, compared with the year-ago period. CE revenue, as a percent of total Gateway revenue, stood at 28 percent in the third three months, rising above the company’s full-year target of 25 percent. Sales of higher margin CE products are expected to more than double in the holiday quarter.

Gateway, which saw its third quarter gross margin slide to 10 percent from 15 percent a year earlier, said total consumer revenue reached $427 million in the same three months, a 33 percent drop year over year. PC unit sales to consumers declined 42 percent in the same time frame, while overall quarterly PC unit sales dropped 24 percent.

The retailer did rein in its expenses, at $230 million in the third quarter, compared with $249 million in the same three months in 2002.

Gateway, which has rolled out 72 products in 16 new categories since May, and remodeled 185 stores during the third quarter, estimated that ongoing layoffs and restructuring would result in charges of between $180 million and $200 million, above its earlier estimate of $120 million to $160 million. Charges in the fourth quarter should range between $50 million and $60 million.

In the first half, Gateway sales dropped from $3.1 billion in 2002, to $2.5 billion this year, with the six-month net loss widening to $403.5 million, from $228.5 million a year earlier.