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Manufacturing Gateway eyes restructuring company



Manufacturing: Computer Maker Reports $20M Loss

With second-quarter earnings released and their stock price falling, executives at Gateway Inc. are mulling the future look of the company.

President and CEO Ted Waitt said executives plan to restructure the personal computer maker and indicated during a conference call that layoffs were possible. Yet specifics on the restructuring will have to wait 30 to 90 days, he said.

The University City-based computer maker will emerge from its restructuring “probably smaller from a revenue and people perspective,” Waitt told shareholders in the July 19 call.

Waitt said there would be “no sacred cows” in remaking the company.

Meanwhile, Gateway stock kept touching new 52-week lows last week. It reached $9.45 per share on July 25 before closing up at $9.74 per share.

The stock’s closing price slid 25 percent July 20, the day after Gateway reported its quarterly figures.

Gateway stock had traded as high as $69.88 over the past year, before it took a big tumble in late November. Waitt, who had founded the company, returned to the CEO’s job in late January, ousting CEO Jeff Weitzen and replacing other executives.

Gateway on July 19 reported a $20.8 million loss on sales of $1.5 billion during its second quarter, ended June 30.

That compares with $118 million in profit on sales of $2.2 billion for the same period last year.

The new quarterly figures translated to a loss of 6 cents per share, when counting special charges and the write-down of an investment. Excluding those, the company had a pre-tax loss of 2 cents per share.

That did not square with the 1 cent per share analyst consensus for the quarter.

Company officials revised their guidance to Wall Street on July 19, saying they expected to break even during the second half of the year. The break-even estimate excluded special charges.

Previously, Gateway executives said they would be profitable in the second half.

Total pre-tax special charges for the current, third quarter will likely be between $25 million and $30 million, the company said in a prepared statement.

The second quarter report included a $24 million special charge and a $20 million write-down on an investment. A company spokeswoman declined to say what the investment was.

Unit sales were down. The company sold 923,000 units in the quarter ended June 30, down 21 percent compared to the same quarter last year and down 16 percent from the first quarter of 2001.

In recent months Gateway embarked on a campaign to beat the price of competitors’ products. But in reporting quarterly results, Waitt and his CFO, Senior Vice President Joe Burke, said they would drop the campaign, possibly by the end of July.

“We never planned on it being a long-term effort,” Waitt said.

He added those in the market for computers were looking for something more than price.

Waitt also said in the future, Gateway planned to rely more on telephone, Web and direct mail marketing than the mass media.

Gateway’s plans for the upcoming months include consolidating its U.S. consumer and business operating units. The restructuring will also include the formation of a “solutions group” which will focus on the integration of hardware, software and services.

Looking ahead, Microsoft Corp. will release its Windows XP operating system in the fall. Waitt acknowledged there could be a “pre-XP stall” in sales during the third quarter. The new software makes its official debut Oct. 25, in the fourth quarter.

With its retail stores, its other direct sales channels and its computer services business, Gateway could benefit from XP, he added.

“There’s a good chance people will be able to see Windows XP, test it out, take a class on it and buy a system with XP loaded on it , from Gateway , sooner than they will be with anybody else,” Waitt said. “But that’s a function of when the product is released and a whole bunch of different things.”

When it comes to calculating the effect of the new operating system on future sales, Waitt added that the company was being cautious.

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