Gateway Inc.’s massive overhaul that included the layoff of a quarter of its worldwide staff last week was a painful but necessary step for a company struggling to survive, said a local high-tech analyst.
“Gateway expanded rapidly to meet an explosive market but when the market dropped out, they did what they had to do, which is retrench. If they didn’t do this, they’d be signing their death sentence,” said Bruce Ahern, a high-tech consultant.
The number of employees who will lose their jobs because of the restructuring is about 4,700, including 2,200 in the United States, and another 2,500 outside the country, said spokeswoman Donna Kather.
For the moment, none of Gateway’s 400 staffers at its headquarters office in University City are affected. However, as the firm continues the restructuring over the next few quarters, another several hundred more jobs may be cut domestically, which could include some in the local office, Kather said.
Included in the international cuts are about 1,085 jobs in Ireland and United Kingdom, which Gateway announced last month it wants to eliminate. The exact number should be known within the next month.
Domestic Cuts
Of the domestic cuts, about 1,300 positions resulted from the closure of call centers in Lake Forest in Orange County; Salt Lake City; Hampton, Va.; and Vermillion, S.D. The firm said it plans to use its chain of 296 Gateway Country retail stores to conduct the sales and servicing functions of the call centers.
Gateway will continue operating an engineering, marketing and sales presence at its Lake Forest site with about 400 employees, Kather said.
As far as its manufacturing, the company said it will close down its plant in Salt Lake City and reduce staff in Hampton and North Sioux City, S.D., steps that will result in the loss of about 600 jobs, Kather said.
Earlier this year, Gateway slashed 3,000 jobs from its payroll and closed 27 retail stores. Following the latest round of cuts, Gateway’s total employment will be about 14,000. It started the year with about 24,000 employees.
“It’s been a difficult situation, but I’m convinced it’s the right decisions we are making for the long-term success of this company,” said Ted Waitt, Gateway’s founder, chairman and CEO.
The market reacted with tepid approval to the layoffs, causing the stock to climb by a dime to $8.60 at the close of trading Aug. 28. It jumped another 19 cents the following day to $8.79, but it’s still way off its 52-week high of $69.88.
Since he returned to take over as CEO in January, Waitt has undertaken a complete housecleaning of his executive staff, then oversaw a restructuring of the company’s business lines in an effort to make the firm more competitive in one of the toughest economic times for PC hardware makers.
Market Saturated
Consumers and businesses aren’t buying new PCs at the same rate they used to, a key reason Gateway’s sales have plummeted, Ahern noted.
“There’s been a significant saturation point in their market,” he said. “You can buy a computer anywhere and brand loyalty isn’t there anymore.”
For the first six months of this year, Gateway reported a net loss of $523.7 million on revenues of $3.5 billion, compared with a net profit of $237.8 million on revenues of $4.6 billion.
While Waitt said the company should be profitable by the fourth quarter, he is referring to a pro forma net profit, and excluding special charges such as the $475 million the company said it will take resulting from the recent layoffs and closures.
The company said it expects to save about $300 million annually as a result of the work force cuts. The entire PC industry has been hit hard from reduced sales this year, but things have been even more painful since market leader Dell slashed its prices, causing competitors such as Gateway to reduce its prices, which have hurt its profit margins.
IDC Dataquest reported in July Gateway’s market share at the second quarter was 7.6 percent, down from 8.4 percent at the same time last year.
Although Kather said the layoffs and charges won’t impact the company’s charitable giving, analyst Ahern said that may be cut as well.
“Let’s face it, if you’re not making money, you don’t spend it on things that don’t help the bottom line,” he said.
The company is on track to relocate its corporate headquarters from University City to Poway either in September or October, depending on when the interior improvements are completed to the new building just off Scripps Poway Parkway. In April the company signed a 10-year lease on the 140,000-square-foot, one-story building.
