* Q1 revenue of $1.078 billion, a 29 percent increase over last
year IRVINE, Calif., April 27 /PRNewswire-FirstCall/ -- Gateway,
Inc. (NYSE:GTW) today reported results for its first quarter ended
Mar. 31, 2006. The company recorded a first quarter net loss of
$12.3 million, or 3 cents per diluted share, compared with a net
loss of $20.9 million, or a loss of 5 cents per diluted share in
the prior quarter, and a net loss of $5.2 million, or a loss of 1
cent per share a year earlier. Gateway's first quarter results
include a total of $14 million in litigation expenses. Revenue
amounted to $1.078 billion, compared with $1.124 billion in the
fourth quarter of 2005 and $838 million a year earlier. "In the
first quarter, our Retail business unit, which also includes our
international sales, continued to perform very well in terms of
both sales and margin," said Rick Snyder, Gateway chairman and
interim chief executive officer. "Unfortunately, our positive
Retail results were partially offset by losses in our Professional
sales unit. As a result, we essentially broke even in the quarter,
prior to litigation expenses of $14 million." "Recently, we
installed new leadership at the top of our Professional and Direct
business units and our plan is to continue to aggressively address
issues in those areas so that we can return Pro and Direct to
profitability over the next three to four quarters. We continue to
view Professional and Direct as strategic components to our
long-term success." Gateway's prior quarter operating results
included a one-time $16.7 million charge associated with the
cross-license and settlement agreement with HP and a $26.6 million
charge related to a prior years' tax liability dispute, of which
$24.8 million was recorded as a selling, general and administrative
(SG&A) expense. Overall Performance The company sold 1,379,000
PC units in the first quarter, up 1.5 percent sequentially, and up
47 percent year-over-year. The increase in unit sales on a
sequential and year-over-year basis is primarily due to market
share gains in Retail. Based on recent IDC data, Gateway was the
fastest growing PC company in the U.S. among the top six vendors on
both a sequential and year-over-year basis. Among the top six
vendors, Gateway was the only company to experience sequential unit
growth in the U.S. in the first quarter. Gross margin percentage
for the first quarter was 7.3 percent, compared with 6.2 percent in
the prior quarter and 9.6 percent in the first quarter of 2005. The
sequential increase in gross margin is due primarily to a $16.7
million charge in the fourth quarter associated with the HP
agreement. The year-over-year declines in gross margin percentage
are due to lower margins in Professional and strong growth in the
Retail business, which typically has lower margins. SG&A
expense in the first quarter was $103 million, or 9.6 percent of
revenue, down from $113 million (including $2.8 million in
restructuring costs) in the prior quarter, and up from $88.1
million (including $8 million in restructuring costs) in the first
quarter of 2005. The first quarter sequential decrease in SG&A
was due to a one-time $24.8 million increase in accrual for
sales/use taxes in the fourth quarter that was partially offset by
$14 million in litigation expenses in the first quarter. Segment
Results The Retail segment, which includes the company's
international sales, delivered revenue of $767 million, with PC
units of 1,163,000. Retail revenue was down 3 percent sequentially
and up 61 percent year-over-year. Retail PC units increased 3
percent sequentially and 62 percent year-over-year. The sequential
decrease in revenue reflects lower average unit prices that were
mitigated by strong market share gains. The year-over-year revenue
increases reflect strong market share gains in U.S. Retail,
including growth in the company's international business. Gateway
and eMachines products are now sold in more than 7,000 retail
locations in the U.S. and Canada and in more than 2,500 retail
locations internationally, including France, Japan, Mexico and the
UK. The Professional segment delivered revenue of $202 million,
with PC units of 158,000. Professional revenue decreased 7 percent
sequentially and 4 percent year-over-year. Professional PC units
were down 5 percent sequentially and increased 7 percent
year-over-year. The sequential and year-over-year decreases in
revenue were predominantly due to competitive pressures. The Direct
sales segment delivered revenue of $109 million, with PC units of
58,000. Direct revenue decreased 6 percent sequentially and 27
percent year-over-year. PC units were flat sequentially and
decreased 23 percent year-over-year. The year-over-year decline in
revenue was due to changes in product and marketing strategies.
Total non-PC revenue, which includes sales of stand-alone monitors,
software, peripherals, services and accessories, was down 15
percent sequentially and up 21 percent year-over-year, excluding
consumer electronics (CE). The year-over-year increase reflects
strong sales of stand-alone monitors, particularly those sold
through Retail. Non-PC sales, excluding CE, represented 17 percent
of total revenue in the first quarter, which compares with 19
percent in the fourth quarter and 18 percent a year earlier. Gross
margin contribution from non-PC products and services, excluding
CE, was down 12 percent sequentially and down 8 percent from a year
earlier. Cash and marketable securities Gateway ended the quarter
with $590 million in cash and marketable securities, an increase of
$4.5 million from the fourth quarter of 2005. This increase was
driven by a $37.3 million decrease in inventory and a $17.5 million
decrease in other current assets which were offset by a $45.8
million decrease in accounts payable and a $7.3 million increase in
accounts receivable. Revised reporting schedule Gateway will report
earnings for the second quarter on Thursday, Aug. 3, 2006.
Conference call information Gateway will host a conference call for
analysts on Thursday, Apr. 27 at 5:30 pm EST/2:30 pm PDT, which
will be accessible via live audio webcast at
http://www.gateway.com/. About Gateway Since its founding in 1985,
Irvine, Calif.-based Gateway (NYSE:GTW) has been a technology
pioneer, offering award-winning PCs and related products to
consumers, businesses, government agencies and schools. Gateway is
the third largest PC company in the U.S. and among the top ten
worldwide. The company's value-based eMachines brand is sold
exclusively by leading retailers worldwide, while the premium
Gateway line is available at major retailers, over the web and
phone, and through its direct and indirect sales force. See
http://www.gateway.com/ for more information. Special note This
press release contains forward-looking statements that involve
risks and uncertainties, as well as assumptions that, if they do
not materialize or prove incorrect, could cause Gateway's results
to differ materially from those expressed or implied by such
forward-looking statements. All statements, other than statements
of historical fact, are statements that could be forward-looking
statements, including any projections or preliminary estimates of
earnings, revenues, or other financial items; any statements of
plans, strategies and objectives of management for future
operations; the extent of seasonal changes in demand; any
statements regarding proposed new products, services or
developments; any statements regarding future economic conditions
or performance; statements of belief and any statement of
assumptions underlying any of the foregoing. The risks that
contribute to the uncertain nature of these statements include,
among others, risks related to shifting our distribution model to
third-party retail; competitive factors and pricing pressures,
including the impact of aggressive pricing cuts by larger
competitors; general conditions in the personal computing industry,
including changes in overall demand and average selling prices,
shifts from desktops to mobile computing products and information
appliances and the impact of new microprocessors and operating
software; the ability to simplify the company's business, change
its distribution model and restructure its operations and cost
structure; component supply shortages; short product cycles; the
ability to access new technology; infrastructure requirements;
risks of international business; foreign currency fluctuations;
risks relating to new or acquired businesses, joint ventures and
strategic alliances; risks related to financing customer orders;
changes in accounting rules; the impact of litigation and
government regulation generally; inventory risks due to shifts in
market demand; the impact of employee reductions and management
changes and additions; and general economic conditions, and other
risks described from time to time in Gateway's Securities and
Exchange Commission periodic reports and filings. Gateway assumes
no obligation to update any forward-looking statements to reflect
events that occur or circumstances that exist after the date on
which they were made. Gateway, Inc. Consolidated Condensed
Statements of Operations (in thousands, except per share amounts)
(unaudited) Three months ended March 31, 2006 2005 Net sales
$1,077,822 $837,781 Cost of goods sold 999,094 757,416 Gross profit
78,728 80,365 Selling, general, and administrative expenses 103,096
88,126 Microsoft benefit 8,625 0 Operating income (loss) (15,743)
(7,761) Other income, net 2,237 1,814 Income (loss) before income
taxes (13,506) (5,947) Benefit (Provision) for income taxes (1,171)
(761) Net income (loss) (12,335) (5,186) Gain on redemption of
preferred stock, net of dividends -- -- Net income (loss)
attributable to common stockholders $(12,335) $(5,186) Net income
(loss) per share: Basic $(0.03) $(0.01) Diluted $(0.03) $(0.01)
Weighted average shares outstanding: Basic 372,982 371,152 Diluted
372,982 371,152 Gateway, Inc. Consolidated Condensed Balance Sheets
(in thousands) (unaudited) March 31, 2006 December 31, 2005 ASSETS:
Current assets: Cash and cash equivalents $458,012 $422,488
Marketable securities 132,194 163,200 Accounts receivable, net
352,548 345,288 Inventory 182,015 219,344 Other 392,929 423,752
Total current assets 1,517,698 1,574,072 Property, plant, and
equipment, net 86,860 83,156 Intangibles, net 38,223 39,462
Goodwill and non-amortizable intangible assets 205,219 205,219
Other assets 19,685 19,156 $1,867,685 $1,921,065 LIABILITIES AND
EQUITY: Current liabilities: Notes payable $50,000 $50,000 Accounts
payable 716,118 761,895 Accrued liabilities 286,479 249,111 Accrued
royalties 57,520 68,216 Other current liabilities 161,543 175,745
Total current liabilities 1,271,660 1,304,967 Long-term debt
300,000 300,000 Other long-term liabilities 54,007 60,825 Total
liabilities 1,625,667 1,665,792 Stockholders' equity 242,018
255,273 $1,867,685 $1,921,065 DATASOURCE: Gateway, Inc. CONTACT:
Media, David Hallisey, +1-949-471-7703, , or John W. Spelich,
+1-949-471-7710, , or Investors, Marlys Johnson, +1-605-232-2709, ,
all of Gateway, Inc. Web site: http://www.gateway.com/
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