* Q4 revenue of $1.021 billion
* Q4 net income of $8.8 million, or $0.02 per diluted share
* FY 2006 revenue of $3.981 billion
* FY 2006 net income of $6.9 million, or $0.02 per diluted share
IRVINE, Calif., Feb. 8 /PRNewswire-FirstCall/ -- Gateway, Inc. (NYSE:
GTW) today reported preliminary results for its fourth quarter ended
December 31, 2006. Revenue amounted to $1.021 billion, up from $963 million
in the third quarter of 2006 and compared to $1.124 billion a year earlier.
The company recorded fourth quarter net income of $8.8 million, or 2
cents per diluted share, after a net tax benefit of $11.8 million. This
compares with net income of $18.2 million, or 5 cents per diluted share in
the prior quarter, and a net loss of $20.9 million, or 5 cents per diluted
share a year earlier.
"Gateway's results for the quarter were mixed, as we continued to
realign our Professional and Consumer Direct businesses while preparing our
Retail business for the recent, successful Microsoft Vista launch. Certain
supply constraints and the resulting impact on our supply chain contributed
to lower than expected gross margins," said Ed Coleman, Gateway's chief
executive officer. "While we continue to face a number of challenges, I
believe cost structure and process improvement initiatives launched in the
fourth quarter, combined with continued product innovation, strong customer
relationships and an increased focus on the consumer market will enable
Gateway to deliver improved financial performance in 2007."
Overall Performance
The company sold 1,288,400 PC units in the fourth quarter, up 10
percent sequentially and down 5 percent year-over-year. Based on
preliminary IDC data, Gateway was the third largest PC company in the U.S.
with an estimated 6.6 percent market share in the fourth quarter, unchanged
from a year ago.
Gross margin for the fourth quarter was 5.2 percent, compared with 7.6
percent in the prior quarter and 6.2 percent in the fourth quarter of 2005.
The sequential decrease is due to margin declines in the Retail and
Professional segments, partially offset by improvement in the Direct
segment. The year-over-year decline in gross margin is due to lower margins
in Retail and a continued mix shift towards the Retail segment, which
historically has lower margins.
SG&A expense in the fourth quarter was $65.4 million, or 6.4 percent of
revenue, down from $74.1 million in the prior quarter, and down from $113.0
million (including $2.8 million of restructuring expenses) in the fourth
quarter of 2005. The sequential decrease in SG&A was due to
headcount-related savings and reduced legal fees, partially offset by
increased brand marketing expenses. In addition to the reduction in
restructuring expenses, the year- over-year decrease was due to reduced
headcount-related expenses and legal fees, offset by a $25 million increase
in the sales tax reserve in the fourth quarter of 2005.
As part of Gateway's 2005 Marketing, Development and Settlement
Agreement with Microsoft, fourth quarter results included the continuing
quarterly benefit of $8.6 million.
Operating income equaled a loss of $4.1 million, down from income of
$7.9 million in the third quarter and compared to a loss of $29.3 million a
year earlier.
Segment Results
The Retail segment, which includes International, delivered fourth
quarter revenue of $755 million, up 21 percent sequentially and down 5
percent year- over-year. Retail PC unit sales equaled 1,113,000, up 18
percent sequentially and down 2 percent year-over-year. The sequential
increase in units and revenue reflect seasonal trends, partially offset by
the effects of component shortages and softer than normal fourth quarter
retail demand in the U.S. and Japan due to Microsoft's launch of its new
Vista operating system in January 2007. The year-over-year decreases
reflect component shortages and decreased demand due to Vista. Microsoft's
launch of Vista in January 2007 caused some retailers to delay their PC
purchases. Our channel inventories closed the quarter at unusually low
levels as retailers managed down their inventories of Microsoft XP products
in anticipation of the January 2007 launch of Microsoft Vista.
Retail gross margin in the fourth quarter was $22.1 million or 2.9
percent of revenue, down from $26.5 million or 4.2 percent of revenue in
the prior quarter, and down from $48.3 million or 6.1 percent of revenue in
the fourth quarter of 2005. Retail segment contribution was $17.1 million
(after Retail SG&A expenses of $5.0 million), down from $20.9 million in
the prior quarter (after SG&A expenses of $5.6 million) and down from $40.6
million a year ago (after SG&A expenses of $7.7 million). The sequential
and year-over-year decline in gross margin and segment contribution is
primarily due to higher costs driven by component shortages, competitive
pricing pressures, and operational inefficiencies.
The Professional segment delivered revenue of $181 million in the
fourth quarter, down 31 percent sequentially and down 16 percent
year-over-year. Professional PC unit sales equaled 135,100, down 30 percent
sequentially and down 19 percent year-over-year. The sequential and
year-over-year decreases in revenue and unit sales were predominantly due
to increased competition within the segment and greater selectivity in
contract bidding.
Professional gross margin was $9.1 million or 5.1 percent of revenue,
down from $34.3 million or 13.1 percent of revenue in the prior quarter and
up from $3.1 million or 1.4 percent of revenue in the fourth quarter of
2005. Professional segment contribution was a loss of $4.2 million (after
Professional SG&A expenses of $13.3 million), down from $18.2 million in
the prior quarter (after SG&A expenses of $16.2 million) and up from a loss
of $15.3 million a year ago (after SG&A expenses of $18.4 million). The
sequential decline in gross margin and segment contribution was due to
seasonal volume declines and the fulfillment and close-out of lower margin
contracts from the first half of the year, partially offset by lower
headcount-related expenses. The year-over-year improvement in gross margin
and segment contribution was due to operational improvements and better
margin management, as well as reduced headcount-related and marketing
expenses.
The Direct segment delivered revenue of $85 million, up 14 percent
sequentially and down 26 percent year-over-year. Direct PC unit sales
equaled 40,300, up 16 percent sequentially and down 31 percent
year-over-year. The sequential increase in units and revenue reflect
seasonal trends as well as a positive response to recent product offerings.
The year-over-year declines in units and revenue reflect the impact of the
change in product and marketing strategy to focus on more fully-featured
solutions and reduce Retail channel conflict.
Direct gross margin was $21.5 million or 25.3 percent of revenue, up
from $12.5 million or 16.8 percent of revenue in the prior quarter and up
from $18.6 million or 16.1 percent of revenue in the fourth quarter of
2005. Direct segment contribution was $16.2 million (after Direct SG&A
expenses of $5.2 million), up from $0.4 million in the third quarter (after
SG&A expenses of $12.2 million) and up from $5.7 million a year ago (after
SG&A expenses of $12.9 million). The sequential and year-over-year increase
in gross margin and segment contribution reflects better than expected
alliance partner revenue sharing as well as reduced marketing and
headcount-related expenses.
Cash and Marketable Securities
Cash and marketable securities decreased to $416 million from $429
million at the end of the third quarter and from $586 million at the end of
2005. The decrease during the fourth quarter includes a $25 million
reduction in notes payable. The decrease during 2006 includes a reduction
in days payable outstanding and a $50 million reduction in notes payable.
Preliminary Full Year 2006
Gateway reported preliminary full-year 2006 revenue of $3.981 billion
and a net profit of $6.9 million, or 2 cents per diluted share. Total PC
unit sales for the year were 5 million, a 12 percent increase over the
prior year.
SG&A expenses for the year were $308.7 million (including $0.5 million
in restructuring, transformation and integration expenses), compared with
$363.6 million in 2005 (including $13.1 million in restructuring,
transformation and integration expenses).
Gateway is still in the process of finalizing and reconciling its
year-end balance sheet. During the course of the year-end close process,
management identified certain inventory receipt discrepancies which may
result in balance sheet adjustments to inventory and liability related
accounts. Gateway is evaluating the effectiveness of its internal controls
related to this matter. Final year-end results will be published with the
10K filing later this month.
Conference Call Information
Gateway will host a conference call for analysts on Thursday, February
8 at 5:30 pm EST/2:30 pm PST, which will be accessible via live audio web
cast 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, December 31 Year Ended December 31,
2006 2005 2006 2005
Net sales $1,020,507 $1,124,194 3,980,803 $3,854,061
Cost of goods sold 967,820 1,054,228 3,725,442 3,531,623
Gross profit 52,687 69,966 255,361 322,438
Selling, general,
and administrative
expenses 65,425 113,031 308,738 363,578
Microsoft benefit 8,625 13,802 34,500 40,500
Operating income (loss) (4,113) (29,263) (18,877) (640)
Other income, net 1,131 1,868 4,138 6,791
Minority interest (18) -- (18) --
Income (loss) before
income taxes (3,000) (27,395) (14,757) 6,151
Benefit (Provision) for
income taxes 11,796 6,493 21,707 (10)
Net income (loss) $8,796 $(20,902) $6,950 $6,161
Net income (loss) per
share:
Basic $0.02 $(0.06) $0.02 $0.02
Diluted $0.02 $(0.05) $0.02 $0.02
Weighted average shares
outstanding:
Basic 372,150 373,115 373,117 371,661
Diluted 372,888 409,250 374,139 372,167
SOURCE Gateway, Inc.
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Related links:
http://www.gateway.com
CONTACT:
Media, David Hallisey, +1-949-471-7703,
david.hallisey@gateway.com, or Investors, Marlys Johnson,
+1-605-232-2709, marlys.johnson@gateway.com, both of Gateway,
Inc.
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