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Gateway (GTW)

Q4 2005 Earnings Conference Call

February 2nd 2006, 5:30 PM.

Executives:

Marlys Johnson, Investor Relations

Wayne Inouye, President and Chief Executive Officer

John Goldsberry, Senior Vice President and Chief Financial Officer

Analysts:

Richard Gardner, City Group

Andy Neff, Bear Stearns

Steven Fortuna, Prudential Equity Group

David Bailey, Goldman Sachs

Bill Fearnley, FTN Midwest Security

Eric Roosevelt, Nova Atomic Robert

Operator

At this time, I'd like to welcome everyone to the Gateway's Fourth Quarter Earnings Conference Call. Your lines have been placed on mute. There will be a question and answer session at the end of the speakers' remarks. I would like to turn it over to Marlys Johnson with Gateway Investor Relations. Good afternoon Ms. Johnson.

Marlys Johnson, Investor Relations

Good afternoon, thank you Sania (ph). Good afternoon everyone, and welcome to Gateway's Fourth Quarter and 2005 Earnings Conference Call. If you've not seen a copy of today's earnings release, please go to the pages on the news and information section of our gateway.com website. Joining me today is President and Chief Executive Officer, Wayne Inouye, and Senior Vice President and Chief Financial Officer, John Goldsberry.

Before we begin, I would like to remind the audience that the presentations you are about to hear contain forward-looking statements based on current management expectations 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 expectations. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements. Information about factors that could cause future results to differ from these expectations can be found in today's earnings press release and the Company's report filed with the Securities and Exchange Commission.

During this call, we may discuss certain non-GAAP financial measures that management uses as a basis to evaluate the Company's financial performance and forecast future periods. If applicable, you can find additional information on these non-GAAP measures and a reconciliation of these measures to GAAP measures in either today's earnings release, and or on the quarterly report page of our website.

I would now like to turn the meeting over to Wayne Inouye who will provide overall commentary on Q4 development, followed by John Goldsberry, who will review Gateway's Fourth Quarter Financial Results. Thereafter, as time permits we will allow questions from the audience. To allow greater participation, please limit your questions to one per person. Wayne?

Wayne Inouye, President and Chief Executive Officer

Thanks, Marlys, and good afternoon everyone. First, I'd like want to thank all our employees for all their hard work this quarter. Together, we continued put in place the building blocks for a long-term growth strategy. Let me startoff by saying that, while we believe the continued delay important groundwork in 2005 for the long-term growth, we are disappointed by our universally diminished gross margins in pro. In 2006, we have a number of initiatives in place to address these margin issues, and we will be talking about each of them as it becomes appropriate.

Last year was about reestablishment in Gateway as a viable brand and categories are relevant to the PC market. In 2005, we were focused on professional sales in going on Notebook and monitor segments. The most recent IDC and NPD numbers for 2005 indicate that we were a success in notebook and standalone monitor growth by any measure. And while our performance as per schedule fell short of our expectations, and the number of deals we closed last year with significant organizations demonstrate that we restored the reserves into the components amongst professional customers. We believe that cautioned about Gateway viability and reputation are truly a thing of the past. The reality is that we did make a lot of progress across the board in 2005. Particularly, in domestic and international retails.

Our successes included the successful launch of desktop and notebooks, PCs, Servers and displays of the praise net claim the media reviewers or vendors and our customers. We dramatically improved brand consideration. And perhaps most importantly, we produced our first full year GAAP profits since 2000. 2006, is all about creating value for our shareholders, employees and customers is about driving more double-digit increases in revenue and profitability in going fast in the market and the key segment of retail and professional.

So, how we're going to do this? It begins with a continued daily rededication from the part of our employees to meet and exceed customer expectations to everything we do. On a product front, we have some exciting things coming this year. We plan to capitalize on major industry innovations, which is Microsoft, Next Generation Desktop Operation Systems, as well as Intel's Device Technology. Intel and Microsoft is spending 100s of millions of dollars to educate the market on these new technologies, and Gateway will be among the first PC Companies worldwide to occident the customers across a broad array of segments and geographies. We also planed to continued focus on increasing share and a rapidly growing mobile computing space across all segments. In 2006, we will enter a new notebook categories, and continue to do the innovative products, as we did with our recent convertible notebooks in Q4.

Finally, we plan to further expand a professional product line to new low cost, manage desktop products and enhanced servers and notebooks. Since the launch of our new combined Company in early 2004, we have focused our efforts on point side of the professional business. In 2006, we planed to continue these efforts with a focus on the server side. And of course, we plan to build our rapidly growing position at standalone monitors, especially our strong position in retail. A good rep saying that we expect to continue growing our retail and international business units this year.

With support of our efforts, we hope to bring our new IT Systems online this year. This will help us improve internal business processes and significantly increase sales activity. These IT upgrades will allow us to rapidly scale many aspects of our professional business. We will also continue our initiative which involves improving the rate of the tech sales of software peripherals and services across all segments increasing tech sales with a strategic imperative in 2006. For the upcoming year, we will be adding resources for our professional sales efforts. These resources include enhanced pricing and configuration, enhanced recreation, and sales and support functions.

Three keys to our improvement plan for professional are, enhancing our overall set of products and services, sharpen increasing of productivity of our sales force, in part through enhanced IT automations and better alignment of internal resources, and continuing to drive unnecessary cost of the business. We will also continue to move forward with our previously announced plans to open a Gateway-dedicated fine assembling facility in United States. This will not only help our pro sales efforts in terms of improving the sales and delivery experience which should significantly drive bottom line improvements by reducing our COGs. We extremely closed, not the location for this facility and plan to be fully operational by mid year.

Our direct sales unit remained a strategically critical part of our go to market strategy. In direct, our strategy is to leverage the benefits of this count, while maintaining this complimentary positioning with our retail and professional sales units. The key to understanding the strategic significance in direct is to understand how we view the consumer PC market. We see the consumer PC market as one high, and our objective in 2006 is to profitably grow our share in the overall consumer market. On the average facing part of our business, direct and retail must work together in a complimentary fashion there. So we can leverage overall additional sales to consumers resulting in greater profitability. Our retail partners doing excellent job showing profitably price and world computer PCs. Direct will continue to make great job depending to customers who want systems not using available of retail.

In closing, we know we still have a lot of work left to do. Turn around to take time in a great deal of effort. We've remained committed to posting profitable sustainable growth over the long-term. But we are also committed to keep their cost among the lowest in the industry. While we continue to face challenges in this increasingly competitive initially, we believe we are making substantial to Gateway. We had strong momentum in retail and international, and we are looking to improve our financial performance in professional and direct in 2006.

Now here is John Goldsberry, Gateway's Chief Financial Officer to discuss the results of Q4 and full year 2005.

John Goldsberry, Senior Vice President and Chief Financial Officer

Thanks, Wayne. Let me start by quickly summarizing our overall financial results for Q4. Revenue came in at a billion 144 million, up 10% from Q3, and 9% from a year ago. Our revenue growth was constrained during the quarter by witness in direct as well as consonant shortages which limited our ability to fully meet the strong demand for our retail products. Operating income was 12.3 million, down from 18.8 million in Q3 due to margin pressures in pro, as well as one time charges in SG&A. With higher other income and $9.8 million tax benefit, net income came in at 22.4 million versus 15.1 million in Q3. Diluted EPS came in at $0.06 versus $0.04 in Q3, but that include $0.02 EBIT tax benefits.

Now, let me walk through the quarter's operating results beginning with PC unit volumes. Gateway sold $1.359 million PC units in Q4, up 16% sequentially, and 13% from a year ago. The increase in units on a sequential basis was driven by seasonal trends and market share gains in retail. The year-over-year increase has offered us a shares gain in retail that was partially offset by declines in Pro and direct.

Based on most recent IDC data we were sequentially the fastest growing PC company among the top five vendors in the US with 16% unit growth and second fastest from a year ago. Notebook unit volume one of our targeted growth areas increased to 401,000 units in Q4, up 20% sequentially and 9% from a year ago making up the fastest growing Notebook Company among the past seven US vendors both sequentially and year-over-year.

Looking at the income statements, our Q4 revenue, as I said before was $1.124 billion, up 10% in Q3 and 9% from the year ago, this sequential increase again was driven by seasonal trends and market share gains in retail. The year-over-year increase was driven by markets share gains in retail, but was offset partially by revenue declines in Pro and Direct. Gross margin was $86.7 million in Q4, up from $84.7 million in Q3 and down from $90.6 million in Q4 of last year. Our gross margin percentage for the fourth quarter dropped 7.7 %from 8.3% in Q3 and 8.8 % last year. The sequential and year-over-year decline in gross margin percentage were due to lower margins in Pro and strong growth in our retail business which typically have lower margins. This was however partially offset by achieving higher margins in retail and direct relative to historical results.

Retail margins did benefit during the quarter from a $5.5 million contractual settlements but were still up sequentially on year-over-year on an adjusted basis. SG&A expenses for Q4 was $88.2 million or 70.8% of revenue which was up from 77.6 million in Q3 or 70.6% for revenue in Q3. This compares to 106 million or 10.3% of revenue in Q4 of last year. The increase this quarter was due to $9.8 million of one time costs equivalent to 0.8% of revenue. These costs include additional restructuring charges and adjustments to legal reserves in sales and Franchises tax accounts. Without these unusual items our SG&A dropped to 7% on revenue.

Lastly we recognized 13.8% in benefits from our Microsoft agreement which was up from 11.6 million in Q3 based on higher qualifying expense. Net result of operating income was 12.3 million in Q4, down from 18.8 in Q3, this compares to a loss of 15.1 a year ago. Nice improvement.

After higher other income and tax benefits of 9.8 million, Q4 net income was 22.4 million which compares to 50.1 million in Q3 and 93.9 million a year ago, the year ago figure of course included a one time $100 million gain from the retirement of Series A and Series C preferred stock that previously known well. Q4 diluted EPS was $0.06 including $0.02 of tax benefits compared to $0.04 in Q3 and a diluted EPS loss a year ago of $0.02 per share.

Turning to our business unit analysis, retail revenue was 792 million in Q4, up 32% sequentially and up 31% from a year ago, retail revenue growth was constrained as I said by component shortages which limited our ability to fully meet strong demand for our retail products. Contribution income from retail was 44.6 million in Q4 which was up 68% from 26.6 million inQ3 and up 52% from a year ago.

The sequential and year-over-year revenue increases were due to strong market shares gains in US retail as well growth in our international business. The contribution income improvements were driven by higher revenue as well as gross margins. Based on the most recent NPD data, Gateway’s US retail desktop market share increased 3.7 points year-over-year from 29.5 in Q4 of last year to 33.2 % in Q4 of this year. Sequentially, however our desktop share declined half a point from 33.7% in Q3 of this year.

In notebooks, our market share increased 3.8% to 11% from 7.2% a year ago, and 10.3 % in Q3. Our overall markets share for PCs was 22.4% which increased three times of percents sequentially and was up 1.8% from a year ago. Professional revenue came in at 217 million in Q4 down 24% sequentially and down 9% from Q4 of last year. Contribution income was a loss of 9.4 million compared to a gain of 7.8 million in Q3, and a gain of 10.7 million in last year.

The sequential decline in revenue was predominantly due to seasonal trends, the year-over-year decline was due to lower unit sales and price decline, the sequential and year-over-year decline contribution income was primarily during by margin declines in response to competitive pricing pressures. Direct revenue was 115 million in Q4, down 13% sequentially, and down 39% from a year ago, contribution income was 12.5 million in Q4, down from 14.7 million in Q3, and down from 17.2 million a year ago. This sequential and year-over-year decline in revenue reflect marketing expenditures that accounted by sales to anticipated levels. The decline in revenue from a year ago was also due to discontinued sales of Gateway branded consumer electronics which took place in Q1 of 2005. Decrease in contribution income is largely due to decline in revenue that was partially offset by improved gross margins.

As we turn to balance sheet, cash and marketable securities declined by 49.6 million to 586 million. This was driven by 26.8 million increase in inventories, and a 24.1 million increase in accounts receivable, both of which is due to significant growth in retail.

At this point we would like to open up the call for questions.

Marlys Johnson, Investor Relations

Sania, would you open up the line for questions.

Questions-and-Answer Session

Operator

Yes ma’am. At this time, if you would like to ask a question, press ‘*’ then the number ‘1’ on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from Richard Gardner with City Group.

Q - Richard Gardner

Good afternoon. Thank you. Couple of questions. First of all, Wayne and John, can you give your thoughts on the potential for just to related pause in consumer demands, as we get into the summer time frame ahead of the launch of that new product. And then

Secondly, can you talk about what components were constrained in the quarter, and may be just give a general idea of how component pricing and availability was in the quarter overall versus your expectation for each of the key commodities and what’s your expectation are for Q1. Thank you.

A - Wayne Inouye

Yeah. Richard, this is Wayne. I am not really concerned about the cause in consumer demand based on introducing a new operating system. I have been to this before multiple times, and you know what we typically do is make a greater portion of our products with the complaint, these forward operating systems in place. There is something to retailers demand, for the consumers demand as well, and I believe we will be able to navigate through that. And your second question was around component shortages.

Q - Richard Gardner

Yeah component shortages and just general pricing and availability in Q4 and Q1?

A - Wayne Inouye

Yeah Q1 is much, much better. There haven’t been any impact, negative impact in pricing, Q4 was tough, Q4 we didn’t, we aren’t able to meet our retail demand, so it was due to component shortages.

Q - Richard Gardner

Can you talk about what components are short, Wayne?

A - Wayne Inouye

Yeah, we prefer not to get into that. It doesn’t really provide any additional insight into our business.

Q - Richard Gardner

Okay, but when you say that components are better in Q1, you are seeing more significant declines in the aggregate building materials in Q1 versus Q4 so for.

A - Wayne Inouye

Certainly seen some, but nothing out of the ordinary.

Q - Richard Gardner

Okay, and if I could just ask one more question, it looks like PC gross margins in all time low this quarter. I am just wondering if you could handicap the major factors there, whether it was mix shift, general shift, the competitive pricing you talked about and professional or some sort of mixture all of the above, and but it is tight to get those margin backup again?

A - Wayne Inouye

Yeah in terms, yeah, John wants to address you.

A - John Goldsberry

Yeah, overall margins were down, and that covers up a significant differences in the pattern between our differences business units. Retail margins were up actually quite nicely from levels that we saw in Q3. Direct margins actually were better, also the one business where we saw decline in margin was professional.

Q - Richard Gardner

Alright, thank you.

Operator

Your next question comes from Andy Neff with Bear Stearns.

Q - Andy Neff

Yes, thank you. Wayne, could you just, as you look at the year, here the expectations that both to ACER and Novo and the entering your channel. Talk about what you think implication that is, and how you, what strategic moves you would make? And second, would you expect that pattern of sales that it reflect typical seasonality going forward?

A - Wayne Inouye

Yes, I can address your first question in regards to competition. You know, we continued to, the Novo and ACER are just two additional brands. We don’t really seeing any significant shift and buying patterns from our customers. We've realized that they are viable competitors. We believe, we have the lowest cost structure in the business to compete at least in the consumer space. So there are competitors, we've got the competitors before, we just continue with our business model in the retail area. And your second question was?

Q - Andy Neff

Just, in terms of as you look at out of the year, this is the quarter, would you expect the several seasonal patterns in the first quarter, and on the next couple quarters, there how should we look at with the sales and earnings?

A - Wayne Inouye

Well, we are certainly not giving any guidance. The seasonal patterns are not, they are dependent on large part based on commitments from many of our partners. So I really can’t tell you that you should look at the typical seasonal patterns?

Q - Andy Neff

Can you elaborate it all?

A - John Goldsberry

Well, I mean that the typical seasonal patterns are obviously the consumer business especially retail for a strong during Q4. The professional business tends to be strongest in Q2 and Q3. In general terms, we would expect the same patterns to, you know to continue, having said that we are certainly seeing or saw significant increases in retail revenues in Q4, and we’ll certainly hope to continue that trend.

Q - Andy Neff

Thanks. Thank you very much.

Operator

Your next question comes from Steven Fortuna with Prudential Equity Group.

Q - Steven Fortuna

Hi Wayne and John.

A - Wayne Inouye

Hi Steve.

Q - Steven Fortuna

Question, Wayne if you turnaround strategy on the professional side doesn’t appear to be gaining much attraction, I obviously have some disappointment there. And I’m wondering, I don’t think you really have a cost advantage over Dell or HP, and from a brand standpoint, if you are a business customer or government customer you started have a good brand in Dell or HP at this point. So I’m wondering, and given the fact that you probably have a pretty good chunk of the cost profile that dedicated to the professional side, why not exit that business. And why other retails maybe slash direct only strategy, and drive the Company anticipating profitability that way?

A - Wayne Inouye

This is interesting thought. I mean in addressing our brand -- our brand versus HP or DELL, we've made some real significant improvements this year, and truly significant improvement in terms of the brand consideration. In terms of the market, it's overall, I believe the larger chunk of the market still reside in what we call professional. Still offers the largest potential to growth. So we have merit to our strategy to continue our turnaround approach. You are right, it hasn’t gone as quickly as we thought it would, but we also realize today that it is much more difficult in that space. And we have dedicated, you know we are opening our fab this year. We believe that we will get more traction this year in the professional space.

Q - Steven Fortuna

Hi, Wayne do you have any sense, I am sure you can share with us hopefully, what percentage of your headcount is on the professional side of the business with ballpark?

A - Wayne Inouye

It's a little bit hard to do because our supply chain is certainly intergraded in terms of…

Q - Steven Fortuna

--from the sales side.

A - Wayne Inouye

Yeah on the sale side, we have roughly, you know, cost between 400 and 500 people in pro.

Q - Steven Fortuna

How was the total headcount there John, of what?

A - John Goldsberry

Our total headcount is in the neighborhood of 1900.

A - Wayne Inouye

Above 25%.

Q - Steven Fortuna

Good enough. Thank you very much.

Operator

Your next question comes from David Bailey with Goldman Sachs.

Q - David bailey

Hi, yes good afternoon. Could you help us better understand how much incremental you are going to have to invest to turnaround your commercial and direct businesses. And then what’s your thinking about the minimum level of units or revenue, we have to drive through your direct business to make it viable longer term?

A - Wayne Inouye

I’ll answer the second question first, this is Wayne. It is not neutrally the number of units, it’s a matter of managing margins and cost in the direct unit. As I stated in my address, I view the consumer market as one high, I look at direct and retailers, two different ways to deliver products to an end user. Frankly I don’t care what we get in each group as long as we can continue to grow in market growth share and to make money in the area. So our strategy going forward, at least in 2006 with direct, a strategy to, you know to breakeven or make money, and we already are making money in the retail sector.

Q - David bailey

And then on the first part, how much do you think you have to invest to turnaround the commercial and direct businesses?

A - Wayne Inouye

I don’t, it’s not a matter of how much more we have to invest, it's how much we’ve invested much of the infrastructure that we’ve committed to our ERP system, or our old trajectory systems, our service systems are there to support direct. Our final assembly facility has a unit in small investments but something not large by any measure. So those money has already been invested.

A - John Goldsberry

Yeah, I would stress that, and putting in place the infrastructure we need to support the professional business, it’s more a matter of getting everything in place. This is not a business that requires huge investments and facilities, and you know well we are not at this time prepared to talk about our specific plans for the final assembly facility. The total amount of investments in dollar terms, which you are going to see there is not huge, certainly compared to Gateway as a whole. It's more matter of making sure we have all the right services, all the right products, all the right infrastructure in place to satisfy the needs of that customers.

Q - David Bailey

Just one quick follow up. Can you tell us how much your cash flow from operations were in the quarter?

A - John Goldsberry

Cash flow from operations was, after adjusting for all changes in working capital was a negative 26.6 million.

Q - David Bailey

And you expect the figure go positive in the first quarter, so we expect more in negative cash flow?

A - Wayne Inouye

I guess, if you look at our operating income, the core changes in working capital; that has been consistently positive. The pattern, due to the seasonality of our business, our working capital requirements, you know shift quarter-to-quarter, as I mentioned this past quarter, you know cash declined by almost 50 million, and that's obviously what's driving that negative figure. The specific things that drove the working capital adjustment are this past quarter where increases in accounts receivable, increases in inventory offset somewhat by an increase in accounts payable. We did shorten a little bit our days of accounts payable that was a conscious decision we made, and as a result we did use up some working capital this quarter, but I would not expect that to be a continuing trend on average.

Q - David bailey

Okay, thank you.

Operator

Your next comes from Bill Fearnley with FTN Midwest Security.

Q - Bill Fearnley

Hi good afternoon. Couple of questions for you on the unit breakout for segment. You guys provided it before. But can you provide a mix in either in units by desktop or notebook by operating segment.

A - Wayne Inouye

Okay, so total units in Q4. I am sorry.

Q - Bill Fearnley

You guys in the past provided, like for instance in the direct professional or retail segment. Can you give an additional color desktop versus notebook, and then either goes out there.

A - Wayne Inouye

Okay. In Q4, retail was a total of 1.34 million units, and the breakout of that’s between desktops and notebooks was 816,000 desktops, 319 notebooks.

Q - Bill Fearnley

And what about professional and direct?

A - Wayne Inouye

In professional, the total number was 167,000 units. The breakout there was 53,000 notebook, and 113,000 desktops in servers.

Q - Bill Fearnley

Okay.

A - John Goldsberry

And then direct, it was 58,000 units, 28,000 desktops and 30,000 notebooks.

Q - Bill Fearnley

Thanks. And then when you look at the inventory picture, inventory certainly went up during the quarter. Is that components, work in process or is it finished goods inventory either in your warehouse or in the channel.

A - John Goldsberry

Okay, so the biggest part of the increase was in finished goods profession with retail.

Q - Bill Fearnley

And were guys have to take breakdowns and move that inventory turns here in the first quarter.

A - John Goldsberry

Oh, no. No. That’s, we run our retail businesses as I think you all know on a build-to-order basis. So that has orders associated with it, that just reflects having inventory on hand to support the business that we are seeing in Q1.

Q - Bill Fearnley

Okay. And then one last question on pricing trends here. When you look at competitive pricing trends, could you add additional color on either PC pricing trends, Palmhouse, our NDF or volume in centre rebased that you saw in the quarter, and what you think you might see here in the near-term competitively, and how that affected your gross margin picture. Thanks.

A - Wayne Inouye

This is Wayne. We didn’t see anything unusual in Q4 at all, and we don’t see thing unusual in Q1, as well in terms of pricing trends. Are you talking about pricing trends in the market place or component pricing trends?

Q - Bill Fearnley

I am actually looking at component price, I am actually, I am sorry looking at selling prices to end users, and then also then from a pricing environment, are you having to do more rebate activity or market development fund or volume intended rebate activity. Has to do more with end user pricing and then shipping our promotions to get the subway into the channel.

A - Wayne Inouye

Okay, our business model doesn’t involve us in providing our retail customers with much in the way of NDF or development funds. I guess the way, I would answer your question is to callback and what I said earlier about the margins we’ve been able to achieve in the different segments. Our margins in retail improved quiet nicely during the quarter. We also saw margin improvements in direct, the one area where we saw margin declines was in the professional space which we obviously help alluded to continues to be very competitive.

Q - Bill Fearnley

Okay. Thanks.

Operator

Again, if you would like to ask a question, please press ‘*’ then the number ‘1’ on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your next question comes from Eric Roosevelt (ph) with Nova Atomic Robert (ph). I do apologize that question has been withdrawn. Your next question, you do have a follow-up question from Bill Fearnley with FTN Midwest Security.

Q - Bill Fearnley

Once again, on the retail AUP's that did hold up this quarter. What helps you focus most, was it the mix of notebook versus desktop, or was it more the Gateway versus eMachine branded in the quarter?

A - John Goldsberry

I would say both, I mean clearly our notebook business continues to grow very, very nicely for us in retail. Those price points are obviously higher. We are also outselling a richer mix of higher price that Gateway products is compared with eMachines product.

Q - Bill Fearnley

And did you guys see a big spike in the 7,000 category as well as in the notebooks space?

A - John Goldsberry

Excuse me

Q - Bill Fearnley

Did you folks see a big spike in volumes in the 7000 notebooks today during the quarter as well?

A - John Goldsberry

Mostly entire market 7000.

Q - Bill Fearnley

Okay, thanks.

Operator

You have a follow-up question from Richard Gardner with Citigroup.

Q - Richard Gardner

Hi, thank you. Just a quick question regarding your new manufacturing facility. I am just wondering, what you plan to manufacture in that facility. I suspect you will probably continue to use that one for all of your notebook manufacturing? So is it going to be a primarily desktop and server, and will it be primarily for the professional side of the business or will it also be for direct. Thank you.

A - Wayne Inouye

Overtime, this is Wayne Inouye. Overtime, we expect our fast and final assembly facility to serve in both direct as well as in professional. There are some notebooks that we will plan to assemble in final assemble facility, did you pay those notebooks are going to the Government which requires assembly in the US, but for the most part it will serve servers and desktops. Yeah, at like this point we do not plan to assemble any displays in US.

Q - Bill Fearnley

Great, thank you.

Operator

There are no further questions at this time. I will turn the call back over to Marlys Johnson.

Marlys Johnson, Investor Relations Officer

Thank you Sania. And thank you everyone for joining with us today. The replay of this conference call will be available on the home page of gateway.com website for 24 hours, and thereafter archived on the Investor Relations web pages. There will also be a telephonic playback of this conference call beginning tonight at 7:30 p.m. Eastern Time and running until midnight Eastern Time on Saturday February 4. That number is 706-645-9291. Have a good evening.

Operator

Thank you for participating in today’s teleconference. You may now disconnect.

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