Gateway Retail PC Sales Rise, CE Off 33%

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Irvine, Calif. — Strong market demand for personal computers boosted fourth-quarter retail PC sales at Gateway, with the company notching a sequential quarterly increase in units of 53 percent, to 926,000, and a 48 percent rise in retail sales of 48 percent, fourth quarter over third, to $604 million.

Total consumer electronics and non-PC revenue declined 2 percent sequentially in the fourth quarter, ended Dec. 31, and dropped 33 percent year-over-year. The sequential and year-on-year decreases were due to lower CE revenue, largely associated with the Gateway-owned retail store closures last April and the completion of excess inventory sales in the third quarter resulting from these closures.

CE and non-PC sales represented 18 percent of total Gateway revenue in the fourth quarter, compared with 31 percent in the same three months a year earlier and 20 percent in the third quarter. Gross contribution from CE and non-PC products and services represented 62 percent of gross margin dollars in the fourth quarter, which compares with 31 percent a year earlier and 20 percent in the third quarter.

“We are pleased with the progress our fourth quarter represents,” said Wayne Inouye, president/CEO. “Since combining Gateway and eMachines last March, we have made great strides toward our goal of long-term sustainable profitability. With the vast majority of restructuring now behind us, we see 2005 as a year to build, leveraging our highly scalable model and low SG&A [expenses] to achieve growth in all segments.”

Overall, Gateway sold 1.2 million PC units in the fourth quarter, a 128 percent increase over the year-ago three months and a 29 percent rise from the third quarter. The increase can be attributed to strong market demand in the company’s retail and direct segments, partially offset by strong declines in the professional segment.

Consolidated Gateway revenue in the fourth quarter reached a bit over $1 billion, compared with $875 in the same three months in 2003. The year-earlier period excludes revenue from eMachines.

Gateway reported a fourth-quarter $6.6 million net loss, down significantly from a $111.3 million net loss in the same three months the previous year. Restructuring costs in the fourth quarter were $22 million, compared with $65 million in the same quarter a year ago. Included in the fourth quarter net income is a one-time $100 million gain from the retirement of stock previously held by AOL.

For the 12 months, Gateway revenue hit $3.6 billion, up from $3.4 billion in 2003. Net loss for the 12 months widened to $567.6 million, from $514.8 million the previous year. Included in the fourth-quarter net loss was a $364 million in restructuring costs.


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