* Q2 revenue of $919 million, a 5 percent increase over last year
* According to preliminary IDC data, Gateway was the fastest growing PC
company in the U.S. among the top five vendors on a year-over-year basis
* Gateway had a Q2 net loss of $7.7 million, or $0.02 per diluted share
IRVINE, Calif., Aug. 3 /PRNewswire-FirstCall/ -- Gateway, Inc. (NYSE:
GTW) today reported results for its second quarter ended June 30, 2006.
Revenue amounted to $919 million, compared with $1.078 billion in the first
quarter of 2006 and $873 million a year earlier.
The company recorded a second quarter net loss of $7.7 million, or 2
cents per diluted share, compared with a net loss of $12.3 million, or 3
cents per diluted share in the prior quarter, and a net profit of $17.2
million, or 5 cents per share a year earlier.
"While we are disappointed with our performance in the second quarter,
we believe that our efforts in the first half of the year are beginning to
resonate with customers and move us in a positive direction," said Rick
Snyder, Gateway's chairman and interim chief executive officer. "Our
Professional business showed solid improvement and our Direct business is
repositioned to regain positive momentum. In addition, we have strong
initiatives in marketing, manufacturing and tech support that will launch
during the second half of the year. Although we're pleased with Retail
revenue growth and progress in Professional and Direct, it is clear that we
must continue to improve our overall business performance."
Overall Performance
The company sold 1,170,500 PC units in the second quarter, down 15
percent sequentially, and up 16 percent year-over-year. The increase in
unit sales on a year-over-year basis is primarily due to U.S. market share
gains. Based on preliminary IDC data, Gateway was the fastest growing PC
company in the U.S. among the top five vendors on a year-over-year basis.
Gateway was the third largest PC company in the U.S. with an estimated 6.5
percent market share in the second quarter, up from 6.0 percent a year ago.
Gross margin for the second quarter was 5.5 percent, compared with 7.3
percent in the prior quarter and 10.0 percent in the second quarter of
2005. The sequential decrease in gross margin is due to an increase in
accrued warranty and royalty expenses associated with a change in
management's estimate of reserve requirements in these categories, as well
as execution issues in our Retail business. The year-over-year decline in
gross margin is due to lower margins in Professional and Retail plus strong
growth in the Retail business, which increases the mix of lower margin
business.
SG&A expense in the second quarter was $66.1 million, or 7.2 percent of
revenue, down from $103.1 million in the prior quarter, and down from $84.9
million in the second quarter of 2005. The second quarter sequential
decrease in SG&A was due to a $8.4 million reduction in sales tax reserves
plus reduced marketing spend and other cost controls established during the
second quarter. SG&A expense in the first quarter was high because it
included a $14 million litigation settlement charge.
Gateway's second quarter results included a $14.2 million reduction in
the company's sales tax reserves and liabilities associated with retail
customer rebates offset by a $14.6 million increase in its legal settlement
expenses plus warranty and royalty reserve increases due to a change in
management's estimates for liabilities in these categories.
Segment Results
The Retail segment delivered revenue of $592 million, down 23 percent
sequentially and up 21 percent year-over-year. Retail PC unit sales equaled
949,000, down 18 percent sequentially and up 27 percent year-over-year.
Retail segment contribution was $17.2 million, down 58 percent sequentially
and down 35 percent year-over-year. The sequential decreases in revenue and
unit sales reflect an unusually strong first quarter and seasonal trends.
The year-over-year revenue increases reflect market share gains in U.S.
Retail and growth in the company's international business. The sequential
and year-over-year declines in segment contribution reflect lower gross
profits due to execution issues, offset by a $4.8 million net reduction of
rebate and royalty reserves.
The Professional segment delivered revenue of $250 million, up 24
percent sequentially and down 8 percent year-over-year. Professional PC
unit sales equaled 186,000, up 18 percent sequentially and down 12 percent
year-over-year. Segment contribution was a loss of $8.3 million in the
second quarter, which compares to a loss of $12.2 million in the first
quarter and a gain of $18.1 million in the second quarter of last year. The
sequential increases in revenue and unit sales reflect seasonal trends. The
year-over-year decreases in revenue and unit sales were predominantly due
to market share erosion. The sequential improvement in segment contribution
was due to better margin management, offset by a $10 million increase in
warranty and royalty reserves. The year-over-year decrease in segment
contribution reflects margin pressures and increases in warranty and
royalty reserves.
The Direct sales segment delivered revenue of $77 million, down 29
percent sequentially and 31 percent year-over-year. Direct PC unit sales
equaled 36,000, down 39 percent sequentially and 26 percent year-over-year.
Direct segment contribution was $9.3 million in Q2, down 3 percent from Q1,
but up 13 percent from Q2 of last year. The sequential and year-over-year
declines in revenue reflect a continuing trend as we redefine our product
and marketing strategy to focus on more fully featured solutions. The
year-over-year increase in segment contribution was primarily due to
reduced selling costs.
Total non-PC revenue, which includes sales of stand-alone monitors,
software, peripherals, services and accessories, was down 16 percent
sequentially and was essentially flat year-over-year, excluding consumer
electronics (CE). Non-PC sales, excluding CE, represented 16 percent of
total revenue in the second quarter, flat with the first quarter, compared
with 18 percent a year earlier. Gross profit from non-PC products and
services, excluding CE, was down 20 percent sequentially and down 29
percent from a year earlier.
Conference call information
Gateway will host a conference call for analysts on Thursday, August 3
at 5:30 pm EDT/2:30 pm PDT, which will be accessible via live audio web
cast at http://www.gateway.com.
Revised reporting schedule
Gateway will report earnings for the third quarter on Thursday,
November 2, 2006.
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 June 30, Six months ended June 30,
2006 2005 2006 2005
Net sales $919,312 $873,112 $1,997,134 $1,710,893
Cost of goods sold 868,736 785,698 1,867,830 1,543,114
Gross profit 50,576 87,414 129,304 167,779
Selling, general,
and administrative
expenses 66,149 84,863 169,246 172,989
Microsoft benefit 8,625 15,069 17,250 15,069
Operating income
(loss) (6,948) 17,620 (22,692) 9,859
Other income (loss),
net (1,317) 2,786 920 4,600
Income (loss)
before income (8,265) 20,406 (21,772) 14,459
taxes
Benefit (Provision)
for income taxes 585 (3,218) 1,755 (2,457)
Net income (loss) $(7,680) $17,188 $(20,017) $12,002
Net income (loss)
per share:
Basic $(0.02) $0.05 $(0.05) $0.03
Diluted $(0.02) $0.05 $(0.05) $0.03
Weighted average
shares outstanding:
Basic 372,089 371,198 372,531 371,174
Diluted 372,089 406,568 372,531 372,190
Gateway, Inc.
Consolidated Condensed Balance Sheets
(in thousands)
(unaudited)
June 30, 2006 December 31, 2005
ASSETS:
Current assets:
Cash and cash equivalents $424,989 $422,488
Marketable securities 99,540 163,200
Accounts receivable, net 319,862 345,288
Inventory 147,808 219,344
Other 345,496 423,752
Total current assets 1,337,695 1,574,072
Property, plant, and equipment, net 85,205 83,156
Intangibles, net 66,540 39,462
Goodwill and non-amortizable
intangible assets 205,219 205,219
Other assets 18,688 19,156
$1,713,347 $1,921,065
LIABILITIES AND EQUITY:
Current liabilities:
Notes payable $50,000 $50,000
Accounts payable 601,272 761,895
Accrued liabilities 248,387 249,111
Accrued royalties 66,889 68,216
Other current liabilities 152,474 175,745
Total current liabilities 1,119,022 1,304,967
Long-term debt 300,000 300,000
Other long-term liabilities 58,564 60,825
Total liabilities 1,477,586 1,665,792
Stockholders' equity 235,761 255,273
$1,713,347 $1,921,065
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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