Investors Pound Gateway After Its Wednesday Warning

The only holiday stuffing the boxmaker sees is in the retail channel.
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Updated from 10:28 a.m. ET

Perhaps the much-publicized division of the American electorate, after months of manifesting itself in alternating claims that

Bush

is stupid and

Gore

can't be trusted, has finally trickled into the personal-computer market. Perhaps, just as

James Baker

and the

Fox News Channel

have been warning, the anxiety caused by the Florida hand recount really has killed the economy.

Whatever. Whether you blame it on the ever-sickening stock market or a

Fed

-induced slowdown, no one's buying any PCs this holiday season, according to

Gateway

(GTW)

, which warned Wednesday night that it would miss fourth-quarter estimates for both sales and revenue by a shockingly wide margin.

Gateway said it expects fourth-quarter operating income to total at least 37 cents a share, way below the 62 cents estimated by analysts polled by

First Call/Thomson Financial

. The PC maker expects to report revenue of about $2.55 billion for the fourth quarter, roughly equal to the same period the previous year and $500 million below previous guidance. Tech stocks of all stripes plunged after the warning, signaling that perhaps tech isn't really as close to a bottom as we keep hearing.

Reg-gie

On a conference call following Gateway's warning, CFO John Todd didn't want to speculate on exactly what went wrong. The bottom line is that the holiday bounce just isn't happening. "We usually see a significant spike on Thanksgiving weekend," he said. "This year, we did not see that spike."

Todd said that because PC sales generally taper off following the big post-Thanksgiving boom, the company thought it best to let analysts and investors know just how bad things could get. Up to this moment -- even after

H-P

(HWP)

missed its earnings estimates by a dime, right up to Thanksgiving -- the company had been maintaining that everything was tracking according to plan.

Worse than the fourth-quarter blowup was the company's new guidance for 2001. Having written off the present holiday season, Gateway's management seems to have come to the interesting conclusion that the Thanksgiving bounce may never again come to pass. The company's new sales guidance figures that sales won't grow at all between the third and fourth quarters of 2001, coming in at $2.9 billion each time. For 2001 as a whole, Gateway now expects sales to total $10.8 billion, down from previous estimates of around $12.2 billion. The company lowered its full-year earnings guidance to $1.89 a share from $2.28 a share.

Hey, Girls!

CFO Todd confirmed something that many have been speculating about lately: PC inventories are rising. Not naming names, Todd said the company had seen channel-stuffing by competitors whose already aggressive price slashing is likely to get worse. Only cheap components -- think DRAM -- will help the company maintain its margins as it follows suit.

To make matters worse, Gateway will also record a charge of about $200 million, or 39 cents a share, to write down the value of its tanking Internet investments. Including that charge, Gateway could report a fourth-quarter loss of 2 cents a share.

Some discussion by analysts on the conference call on the extent to which Gateway's problems are Gateway-specific may have sparked some gallows humor among investors who've found themselves stuck holding names like

Intel

(INTC) - Get Report

,

Apple

(AAPL) - Get Report

,

Dell

(DELL) - Get Report

and H-P this fall.

Rest assured, without the prospect of a holiday bounce, speculation that the PC stocks are poised to regain lost ground will sound silly for some time to come. Gateway may have been looking cheap after losing nearly 60% of its value between Sept. 1 and Wednesday, when it closed regular trading at a 52-week low of $29.50. But it tumbled $10.50, or 36%, to $19 Thursday.