Gateway loss widens as patent lawsuit fund grows

Deal with HP in the offing?

Legal costs knocked a further $6m off Gateway's bottom line, widening its Q1 loss to $172m (51 cents a share), the PC maker announced today.

The company stuck with the preliminary revenue figure it put out at the end of April. It made $868m in the three months to 31 March 2004, less than percentage point down on the $875m it reported for Q4 2003 and up on the $844m it posted this time last year.

Gateway was expecting to announce a $166m loss for the quarter, during which it acquired budget PC maker eMachines. That figure included a $104m one-off restructuring charge revolving on the eMachines acquisition and Gateway's plan to close its 188 bricks'n'mortar stores with the loss of 2500 jobs. Early in March, it announced the loss of another 2000 jobs.

The $6m addition to the preliminary quarterly loss is due to "an increase in a reserve related to a patent-infringement claim as a result of recent developments in final settlement negotiations".

Currently, Gateway is being sued by HP, which claims six of its PC-related patents have been violated by its rival. HP began legal proceedings against Gateway last March after the latter allegedly refused to renew a technology license it had signed with Compaq but which expired in 1999. HP acquired Compaq in 2002.

That reference from Gateway to "final settlement negotiations" suggests it is paving the way to cough up cash to HP to end the affair. Clearly it wants it take some of that on the chin now rather than handle it in a future quarter. A more cynical observer than us might suggest that the release of preliminary figures followed by a quick addendum a few weeks later might be seen as a way of disguising the bad news. ®

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