Gateway posts mounting losses in Q1

Gateway posted a quarterly net loss on Thursday, saying that strong sales in its retail division were offset by losses in its professional division.

Gateway posted a net loss of $12.3 million, or $0.03 per share, in its first quarter of 2006, which ended March 31. The PC maker had a net loss of $5.2 million, or $0.01 per share, in the first quarter of 2005.

The results fell short of the consensus expectations for earnings of $0.02 per share from analysts polled by Thomson Financial.

The Irvine, California, company plans to reverse its losses through an aggressive focus on its professional and direct business units, making them profitable within three to four quarters, Rick Snyder, Gateway's chairman and interim chief executive officer, said in a statement. Gateway has been struggling to hire a new chief executive officer since former head Wayne Inouye resigned in February.

Gateway did manage to increase its revenue from $838 million in the first quarter of 2005 to $1.078 billion.

The company ranks as the third largest PC vendor in the U.S. But Gateway's 8.8 percent market share lagged far behind Dell (32 percent) and Hewlett-Packard (19.7 percent), according to quarterly PC shipment numbers tracked by market analysis firm IDC.

Most of the company's losses came from a slump in its professional and direct sales sectors.

The company sold only 158,000 PCs through its professional channel during the first quarter, resulting in a revenue drop of 4 percent compared to that sector in the same quarter last year. Direct sales were even worse, moving just 58,000 PCs and generating 27 percent less revenue than in the same quarter in 2005.

By comparison, Gateway sold 1.16 million PCs through retail stores in the first quarter, delivering a whopping 61 percent rise in year-over-year revenue in this segment.

By selling 1.38 million PCs in the first quarter, Gateway rose 48.2 percent above its first quarter of 2005's result. That ranked it as the fastest growing company among the top six PC vendors in the U.S., judging by IDC's numbers for year-over-year growth in units sold.

Gateway hopes to press its advantage in the retail sector during 2006 by expanding its retails sales into France. The company already sells computers in Japan, Mexico and the U.K., in addition to the U.S. and Canada.

The company announced Wednesday it had agreed with European retailer KESA Electronics to sell three desktop PCs; the GT5016f (or GT5018f), the E3024 (or E3026) and the E4042.

That plan makes sense, but it might be tougher than it sounds, said Isabelle Durand, an analyst with Gartner.

"Competition remains intense on the French consumer market. International vendors continued to gain market share while local vendors are suffering. By consequence, vacant places on the retail shelves are limited," she said.

Gateway will have to compete with vendors including: Acer, Dell, Hewlett-Packard, NEC (with its Packard Bell brand), Fujitsu Siemens Computers and Toshiba.

"In terms of prices, Gateway PCs seem to be quite well positioned," she said. "However, French consumers make purchasing decisions based not only on the price of the PC. Consumers are also looking for more services such as training, hot line support and availability of a low priced broadband internet package."