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Gateway posts wider Q2 loss

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CIOL Bureau
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SAN FRANCISCO: Personal computer maker Gateway Inc. has reported a sharp lower second-quarter revenue and a loss, nearly tripled from a year earlier as it fought to keep customers from rivals in a dismal market.



At the same time, revenue at the No. 3 U.S. personal computer maker rose, albeit by less than a percentage point, from the first quarter. Typically revenues decline about 5 percent to 7 percent in this time frame, and Gateway said that it was the first time they had increased from the first quarter to the second since 1997.



The flat revenues suggest that Gateway's plan to offer package deals and cut prices in a bid to regain market share lost to low-price leader Dell Computer Corp. and Hewlett-Packard Co. may be stemming further falls in market share. Gateway has revamped its laptop and desktop PC lines, which may have attracted customers to its 274 Country retail stores.



Poway, California-based Gateway, the No. 3 U.S. personal computer maker, reported a loss of $61.2 million, or 19 cents a share, in its second quarter ended in June, compared with a loss of $20.8 million, or 6 cents a share a year earlier.



Gateway's second-quarter loss narrowed from its first-quarter loss of $123 million, or 39 cents. Revenue dropped 33 percent to $1.0 billion from $1.50 billion, though it edged up from first-quarter revenue of $992 million. Last year's second quarter included results from overseas markets, markets that Gateway had subsequently exited, and is focused principally on the U.S. market.



Hopes to match or better typical Q3 sales growth


Gateway also said it sees revenue in the traditionally stronger third quarter rising from second-quarter levels. Chief Financial Officer, Joe Burke said on a conference call that historically, Gateway's sales have increased 10 percent to 15 percent in the third quarter from the second period.



"Hopefully we'll have our historical trend or better," Burke said, adding that preliminary data shows that PC shipments in the second quarter were down 3 percent to 4 percent from the first quarter.



Gateway added that it expects per-share results to "improve modestly" from the second quarter, implying a slight narrowing of the loss.



Analysts polled by Multex had seen losses of 15-20 cents per share in the second quarter, with the average forecast a loss of 17 cents on revenues of $992 million. Analysts expect Gateway to post a loss of 10 cents a share in the third quarter, on revenue of $1.15 billion.



During the latest quarter, Gateway sold 651,000 units, roughly flat with first-quarter shipments of 645,000 units. Shipments fell 18 percent from a year ago. Gateway also said that sales to government and education customers were stronger than it had expected during the peak second-quarter buying season. Consumer sales ticked down, but at a lower rate than the company typically sees, Gateway said.



"It looks like the PC market was down more so than what seasonality would indicate but nonetheless we were better than our historical seasonality," Burke said, suggesting Gateway marked some market share gains in the quarter.



While Gateway expects the remainder of the year to remain challenging, it did reiterate its earlier estimate for 2002 revenues of $4.5 billion to $5.0 billion. It also retained its earlier guidance for a pretax loss, excluding what it termed special charges, of $200 million to $250 million, and a year-end balance of cash and marketable securities of $1 billion.



Shares of Gateway were unchanged at $3.66 on the New York Stock Exchange before the report, which came after U.S. markets closed. Gateway stock fell 54 percent this year, compared with a 28 percent decline in the American Stock Exchange Computer Hardware Index.



© Reuters

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