Publish date:

Gateway CFO Outlines the Company's Plans

It's not enough to assuage fears however, and the stock closed down.

SAN FRANCISCO -- Despite rumors that Gateway (GTW) CFO John Todd was skipping out of presenting at the PaineWebber Growth and Technology Conference, he did show up and outline Gateway's plans for the future.

Most significantly, Todd said the company is comfortable with consensus estimates of 55 cents a share for the second quarter, which ends at the end of this month, and believes that annual estimates of $2.83 a share are also doable. His comments didn't help the stock today, though, as it closed down 3 3/16, or 3%, at 58 13/16.

In last year's second quarter, Gateway missed the consensus of 44 cents by 6 cents, so attendees were understandably concerned about the quarter, particularly with all the talk about problems in the PC industry of late.

PC pricing was a big topic, as Todd said that PC average unit prices have dropped 40% over the last two years in the industry. But at Gateway, they had only fallen at half that rate, he said. Todd said the company will continue to invest in sub-$1,000 and sub-$800 business strategies because even at that price point, the products will be "accretive to earnings and margin neutral."

Although Todd insists it won't affect margins, it can't help improve them. So Todd highlighted Gateway's "beyond-the-box" way of thinking. "We are a PC OEM, but we want to move to become a PC solutions provider," he said. For example Gateway expects to have almost 400,000 subscribers to its Gateway.net ISP service by the end of the second quarter.

Gateway's PC solutions should help the bottom line, and one money manager says he is no longer concerned about Q2 results.

"In last year's fourth quarter, Todd told us that he was nervous about the quarter. This time, he's saying he's comfortable," says the money manager who requested anonymity. "Ever since Todd came in as CFO in October, he has said that he will be more upfront with the Street." The money manager, who does have a long position in Gateway, said he'll trust Todd until he belies his confidence.

It's important to remember, however, that Gateway's quarter is extremely backloaded and that means even Todd won't know about the bulk of his revenue for a couple more weeks.

Ever since Compaq said its earnings would come in at less than half of initial expectations, PC investors have been waiting for the next company to falter.

"Of all the PC guys, Gateway has this business best figured out," says Jeff Matthews, money manager with

Ram Partners

. Matthews, who doesn't have a Gateway position because of valuation concerns. But he does note that the company's solutions, especially its Country Stores, are much more convenient and logical than he had first thought. He likes them so much that he bought two computers during a recent visit.

Kai-teh Tao, a portfolio manager with

Watson Investment Partners

, concurs with Matthews' thinking on Gateway's package of options. "Gateway has a handful of weapons, so if one malfunctions, then the others will pick up the slack." Tao does not have a position in Gateway at this time but was impressed with Todd during the company's breakout session after the presentation.

-- Eric Moskowitz

In the Market

Tech stocks fell along with the rest of the market due to ongoing interest rate

concerns ahead of Friday's retail sales and

Producer Price Index

reports.

Though the

Nasdaq

was off 35 points, or 1.4%, the

Philadelphia Stock Exchange Semiconductor Index

was up another 1.5% after Wednesday's 4.5% gain. Helping the sector was news that

Intel

(INTC) - Get Intel Corporation (INTC) Report

would begin making chips from larger silicon wafers. Intel closed up 2 1/4, or 4%, at 55 3/8.

Other gains of note include:

TheStreet Recommends

Applied Materials

(AMAT) - Get Applied Materials, Inc. Report

, which closed up 1 3/16, or 2%, at 66.

PRI Automation

(PRIA)

closed up 3 1/4, or 10%, at 36 7/8, and

Micron Technology

(MU) - Get Micron Technology, Inc. (MU) Report

closed up 2 7/8, or 7%, at 46.

The Internet sector was mostly weak.

TheStreet.com Internet Sector

index closed down 5, or 1%, at 570. Online brokerages, which would be sensitive to interest rate moves, closed lower.

E*Trade

(EGRP)

closed down 1, or 2%, at 39 1/2.

Ameritrade

(AMTD) - Get TD Ameritrade Holding Corporation Report

closed down 3 1/16, or 4%, at 82 13/16.

Among other stocks of note,

America Online

(AOL)

closed down 5 1/4, or 5%, at 105 3/4. Also,

Excite@Home

(ATHM) - Get Autohome, Inc. Sponsored ADR Class A Report

continued to see the fallout of last week's court

decision in Oregon, closing down 4, or 4%, at 92 7/8.

Network Solutions

(NSOL)

managed to close up 6, or 10%, at 66 1/4 following a

presentation at the PaineWebber tech conference.