Goldman Sachs Conference: More Stores for Gateway

PC maker Gateway (GTW) continues to wow Wall Street, which was very much evident Wednesday at the Goldman Sachs Technology Investment Symposium. "Gateway had the most organized presentation so far," said Bill Miller, Legg Mason's high-profile fund manager, after remarks by Gateway financial chief John Reed. Gateway was up 2, or 3%, by noon, and is up 26% since it reported earnings on Jan. 21.

With $1.3 billion in cash and zero debt, Reed said Gateway will continue to build out its Country Stores retail effort and YourWare leasing program. Currently, the company has 148 stores and Goldman Sachs PC hardware analyst Rick Schutte expects that number to double. For its first quarter, Reed expects Gateway to earn $95 million, or 60 cents a share, on revenue of $2.1 billion. Schutte forecasts a 12% year-over-year decline in average PC unit prices.

Gateway CEO Ted Waitt, also a keynote speaker at Wednesday's luncheon, fielded a number of questions about the company's customer service. "Our ISP transition to UUNet wasn't a pretty sight and we were hit by a spike in calls," conceded Waitt, who deem customer service at Gateway a short-term problem.

But those in attendance were more concerned. "Gateway needs to work hard for each PC sold, and that requires a high degree of servicing," says Joel Gechter, hardware analyst at Chicago-based Northern Trust Bank, which has a small long position in the stock. "Gateway will continue to suffer here vs. Dell (DELL) because there are too many novice users out there trying to add new sound cards and such."

"We want to leverage customer relationships with our 5 million customers so that we can continue selling them additional computers, ISP service and added software," explained Waitt. Gateway's Reed, who said the company just launched a stock repurchase plan, also suggested potential acquisitions may be in the works. In terms of growth, Reed said Asia (50% year-over-year sales growth in 1998) had a lot of upside. He didn't dwell on Europe, which showed just a 2% year-over-year rise in sales, but one analyst who requested anonymity and has no current Gateway position said he is concerned about the region. "Asia alone can't keep Gateway's lofty growth rates up," he suggested.

Sun Also Rises

Money managers were sitting on the floor between the aisles to listen to Sun Microsystems' (SUNW) Ed Zander speak. No wonder, since the company's chief operating officer said he expects the company's revenue growth, recently around 16%, to continue to rise thanks to the company's strategy to provide products for the "Web everywhere."

Also, Zander said he was confident the company's tie-in with the America Online (AOL)-Netscape (NSCP) deal would be accretive to earnings immediately once it's completed next month.

DoubleClick Likes the Middle

DoubleClick (DCLK) CEO Kevin O'Connor says the middle is the place to be. "We're in the middle -- we're going to make it happen," he said. The company makes money not only selling advertisements on behalf of Web publishers but also by providing an advertising sales management system to publishers who have their own sales force.

What about fears that DoubleClick will lose its ad-sales business to companies that will sell their own advertisements? Financial chief Jeffrey Epstein insisted that the company, which takes around one third of the money from advertising it sells, can boost revenue by selling ads at a lower cost than a publisher might do on its own.

DoubleClick's DART ad-management system, which shows a gross profit margin of around 70%, makes an outsized contribution to the bottom line, Epstein explained. DART accounted for 17% of of DoubleClick's fourth-quarter revenue of $29.1 million, and 40% of gross profits.

The company isn't profitable yet, but Epstein stressed that it is moving in the right direction.

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