Gateway announces 2,250 job cuts, store closings

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Posted 9:29AM on Friday, January 25, 2002

SAN DIEGO - Gateway Inc., the nation's fourth-largest computer maker, announced that it will eliminate 2,250 jobs and close 19 stores and several offices in an effort to cut costs as it struggles with reduced industry sales and a shrinking share of the U.S. market. The cuts came as the company on Thursday reported a net profit of $5.1 million, or 2 cents per share, reversing a year ago loss of $128 million, or 40 cents per share. "We said we'd return to profitability in the fourth quarter and we did," said Ted Waitt, the chairman and chief executive officer. That profit came despite the fact that domestic computer sales fell 17 percent to 681,000. Revenues plunged 53 percent 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. Gateway, which cut 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 rose nearly 7 percent to $6.80 in late trading Thursday. The shares closed the regular session at $6.36, up 24 cents, on the New York Stock Exchange, before Gateway's announcement. The credit rating agency Moody's Investors Service Inc. downgraded Gateway's debt rating to junk status this month after Gateway reported that domestic sales fell 15 percent in the fourth quarter and revenues would come in below expectations. Gateway's warning prompted one analyst, Ashok Kumar of US Bancorp Piper Jaffray, to write that the computer company 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. Gateway's fourth-quarter share of the U.S. market fell to 6.3 percent from 7.8 percent. The industry leader continued to be Dell Computer Corp. at 27.5 percent, 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 total 1,180 layoffs. The company will also cut 480 jobs at its North Sioux City, S.D., manufacturing, sales and support center; 15 from sales and service department in Sioux Falls, S.D.; 240 from manufacturing center in Hampton, Va.; 30 from an information technology center in Denver; 30 from a sales and service center in Kansas City, Mo.; and 30 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. For the year, Gateway posted a net loss of $1.03 billion, or $3.20 per share. In 2000, the company earned $241 million, or 73 cents per share. Revenue fell 37 percent to $6.08 billion from $9.60 billion a year earlier.