Gateway Slammed as Price Declines Offset Unit Growth

Aug. 4.06 | About: Gateway Inc. (GTW)

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Gateway Posts Loss As Margins Shrink

  • Summary: Gateway Inc., the third largest US PC vendor, reported Q2 results: Revenue up 5.3% to $919 million. Gross margin fell to 5.5% from 10% a year earlier. Net loss of $7.7 million compared to a net gain a year earlier of $17.2 million, which included a $15.1 million payment from a legal settlement with Microsoft. Gateway said it is making progress turning around its direct and professional business.
  • Comment on related stocks/ETFs: Gateway's stock (GTW) fell about 10% in late trading after the results were announced. Gateway's unit shipments of PCs rose by 16% year over year, but revenue was up only 5%. That means that Gateway gained market share on a unit basis, driven by its strategy of partnering with retail stores -- its sold 21% more units into its retail channel year over year. Gateway's core problem is pricing: the US market is maturing and growing slower than international markets where Gateway isn't a player, and Dell and HP are pricing aggresssively. Arguably, Gateway has no niche of its own, an uncompetitive cost structure, and weaker brand than its competitors. Its only advantage is its relationship with retailers. The issue now is how Gateway will fare going forward given Dell's move to "simplify" its pricing. Resources: press release, conference call transcript, excerpts about PC price competition and the company's thoughts on differentiation, Bloomberg's write-up of the earnings results, and Sony's recent results including a comment on strong laptop sales.