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Gateway to Slash Jobs, Close Stores

Computers: Cost-cutting measures come as the company reports a net profit of $9.4 million.

January 25, 2002|From Associated Press

SAN DIEGO — Gateway Inc., the nation's fourth-largest computer maker, announced Thursday that it will eliminate 2,250 jobs and close 19 stores and several offices to cut costs as it struggles with reduced industry sales and a shrinking share of the U.S. market.

The cuts come as the company reported a net profit of $9.4 million, or 3 cents a share, reversing a year-ago loss of $128 million, or 40 cents a share.

"We said we'd return to profitability in the fourth quarter and we did," said Ted Waitt, Gateway's chairman and chief executive.

That profit came despite a 17% decline in domestic sales to 681,000 units.

Revenue plunged 53% to $1.14 billion from $2.45 billion in the year-earlier quarter, below analysts' expectations of $1.28 billion, according to Thomson Financial/First Call.

Excluding one-time items, the company earned $5.1 million, or 2 cents a share. Analysts surveyed by First Call were expecting Gateway to earn a penny a share.

Gateway, which laid off 5,000 workers last year, or nearly a quarter of its work force, does not expect any more layoffs this year, Chief Financial Officer Joe Burke said.

"We think this gets us to the right level," he said.

Shares of Gateway closed at $6.36, down 24 cents, on the New York Stock Exchange before the company's announcement.

Credit-rating agency Moody's Investors Service Inc. downgraded Gateway's debt rating to junk status this month after the company reported that domestic sales fell in the fourth quarter and revenue would come in below expectations.

The warning prompted one analyst, Ashok Kumar of US Bancorp Piper Jaffray, to write that Gateway was "struggling with an unsustainable business model."

The company, which is turning its focus to more profitable, higher-end systems, lost market share in the fourth quarter but remains the No. 4 computer maker in the United States, according to preliminary findings by IDC, a technology market research firm in Framingham, Mass.

The industry leader continued to be Dell Computer Corp. at 27.5%, followed by Compaq Computer Corp. and Hewlett-Packard Co.

Gateway plans to close its marketing, engineering and administrative office in Lake Forest; its Web sales office in Beverly, Mass.; and tech support centers in Rio Rancho, N.M., and Colorado Springs, Colo. Those closings will bring 1,180 layoffs.

The company also will cut 480 jobs at its North Sioux City, S.D., manufacturing, sales and support center ; 15 from its sales and service department in Sioux Falls, S.D.; and 30 jobs at its headquarters in the San Diego suburb of Poway.

Gateway is closing 19 underperforming Country Stores in California, New York, New Jersey, Florida, Washington state, Ohio, Texas, Michigan and Illinois.

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