Gateway Tumbles as Loss Widens - TheStreet

Updated from Oct. 23

Gateway

(GTW)

shares toppled a painful 19.7% a day after the company reported slumping sales and said its loss had dramatically widened, while noting that next quarter's loss could be higher than analysts' estimates.

The boxmaker's stock was trading down $1.20 to $4.90 in recent trading.

"Lucky Seven or Craps?" queried Needham analyst Charlie Wolf in a morning note. "We continue with a hold

rating because of the Las Vegas-like quality of the company's fourth quarter outlook," he said.

The wide range in forecasted sales underscore's Gateway's own uncertainty about its near-term prospects.

If the company is to have success, it will likely find it in consumer electronics rather than its traditional PC business. Though the computer market is showing strength, Gateway's unit sales slid 23% and PC gross margins stood to 3.8% on stiff pricing pressure, Wolf noted. In contrast, consumer electronics and non-PC revenues, which accounted for 28% of total sales (up from 16% a year ago), showed a much healthier margin of over 40%.

"The open question -- which will begin to be answered in the fourth quarter -- is whether Gateway can capture consumers' attention selling its own branded consumer electronics products," said Wolf. A looming threat, he noted, is Dell's imminent entry into the consumer electronics market. Wolf has a holding in Gateway.

Yesterday the company reported that year-over-year sales slid 21% to $883.1 million in its third quarter, although they came in above analyst expectations for $874 million.

The company's net loss surged to $136.1 million, worse than last year's loss of $46.9 million. On a per-share basis, the loss amounted to 43 cents.

The company took third-quarter charges of $73 million or 23 cents per share for restructuring costs and transformation expenses. On a pro forma basis, Gateway's EPS loss was 20 cents, compared with analysts' expectations of a 19-cent loss.

The company said digital TV unit sales grew by more than 70% from the prior quarter.

Gateway expects fourth-quarter revenue of between $925 million and $975 million and a loss of between 9 cents and 15 cents a share.

Analysts polled by Thomson First Call were expecting revenue of $959.4 million and a per share loss of 9 cents.