Gateway 2000 warns of weak earnings 'They over-inventoried and overspent'

September 04, 1997|By BLOOMBERG NEWS

NORTH SIOUX CITY, S.D. -- Gateway 2000 Inc. warned yesterday that its third-quarter earnings will drop far below estimates mainly because it spent more money to gear up for personal computer sales that failed to meet its forecasts.

The direct-seller of PCs had been expected to earn 47 cents a share, the average estimate of 18 analysts polled by IBES International Inc. But the company said a buildup of computer parts, falling prices and the United Parcel Service strike will push its profit before taxes and charges to "marginal levels."

Shares of the North Sioux City-based company fell $3.75 to close at $32.8125 in busy trading yesterday.

The earnings disappointment is the second straight for Gateway. The company overestimated demand in its main consumer market and geared up for faster growth in business sales than it was able to achieve.

"They over-inventoried and overspent," said Christine Chien, a portfolio manager at Zurich Kemper Securities in Chicago, who sold about half her company's Gateway shares earlier this year.

Analyst Jeffery Baker with Rauscher Pierce Refsnes said Gateway 2000 executives told him Friday that the company might have trouble meeting sales targets. The speculation heightened yesterday, when the company canceled a meeting with PaineWebber portfolio managers in Austin, Texas.

After charges for the acquisition of Advanced Logic Research Inc. and a write-off of investments in information systems, Gateway said it likely will report a loss.

Gateway was particularly disappointed with sales of computer systems equipped with Intel Corp.'s Pentium II processor, which rose to a lower-than-expected 20 percent of revenue.

The company also spent more to increase inventory for notebook computers, where demand lagged expectations, said Ashok Kumar, an analyst with SouthCoast Capital.

"Our internal forecasts were somewhat overly aggressive," said Gateway Chairman Ted Waitt . He said unit shipments in the third quarter are expected to rise 30 percent from a year earlier. The company expects "phenomenal growth" in the fourth quarter, traditionally its strongest, he said.

Pub Date: 9/04/97

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.