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Gateway Q4 loss shrinks

Falling restructure costs

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PC vendor Gateway yesterday announced fourth-quarter sales of $1.03bn, up 12.5 per cent from $915m in the previous quarter and 17.6 per cent from $875m this time last year, although that figure doesn't include a contribution from eMachines, which it acquired in March 2004.

Gateway sold 1.2m PCs in Q4, up 29 per cent on Q3 and 128 per cent on Q4 FY2003. Subtract the contribution made by the retail stores jettisoned by Gateway in April 2004, and add sales by eMachines in the same period and year-on-year sale increase falls to 20 per cent.

Retail sales drove the quarter, with sales of 926,000 PCs yielding $604m in revenue, up 53 per cent and 48 per cent, respectively, on the previous quarter. Gateway's direct sales operation sold 102,000 PCs to generate $188m, sequentially up 21 per cent and three per cent, respectively.

Given the consumer-orientation of the Christmas sales period, it's no surprise that pro sales were down, with unit sales falling 29 per cent sequentially to 171,000 PCs, and revenues down 27 per cent to $237m.

Consumer electronics kit and accessory revenues were down two per cent on Q3, and 33 per cent down on Q4 FY2003, again primarily due to the store closures. Still, a two percentage point gain in margins balanced the loss of revenue. Net income for Q4 FY2004 came to $94m, a big turnaround from Q3's $59m loss and the $114m lost in Q4 FY2003. Q4's figure was boosted by a $100m gain from retirement of stock formerly held by AOL. And Gateway's ongoing restructuring costs were down to $22m in the quarter, from $63m in Q3.

Operationally, Gateway lost $15.18m during Q4, down from the year-ago quarter's $92.56m loss.

For the year as a whole, Gateway's operational loss totalled $601.98m, 17.9 per cent bigger than FY2003's loss, $510.58m. Full-year sales were up 7.3 per cent from $3.40bn to $3.65bn. The PC vendor's net annual loss fell from $525.95m to $475.48m.

Gross margin for Q4 totalled 8.8 per cent, including a 0.4 per cent impact from the restructuring programme. That's down on the previous quarter's 10.1 per cent (with a 1.1 per cent restructuring hit) and 15 per cent (with a 1.3 per cent restructuring hit) in Q4 FY2003.

Gateway ended the quarter with $644m in cash and securities, down $16m on the previous quarter thanks to the cost of restructuring.

The effect of said programme should be much reduced going forward, said CEO Wayne Inouye: "With the vast majority of restructuring now behind us, we see 2005 as a year to build."

Q1 FY2005 is expected to yield sales of $810-850m, in line with previously forecast full-year sales of $4-4.25bn, Gateway said, with the company breaking even in the quarter, or making a small loss. ®

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