Gateway Restructuring In The Works

Company CFO Rod Sherwood cuts straight to the profitability chase, as the computer maker wants to be in the black by the end of the year.

Faced with sluggish PC sales and increasing competition, computer maker Gateway Wednesday gave a thumbnail sketch of a restructuring plan to stay in the hunt.

CFO Rod Sherwood said the Poway, Calif.-based company has had enough of losing money. In eight out of its last nine quarters, Gateway has posted losses in a world increasingly full of PC made by Dell Computer and Hewlett-Packard .

To help stop the bleeding, Sherwood said Gateway will "reduce its quarterly selling, general and administrative spending to below $200 million by the fourth quarter." That number is down from $250 million a year earlier. In addition, Gateway said it would reduce its cost of goods sold by approximately $200 million annually. Last year, Gateway's cost of goods sold hit $3.61 billion.

"We expect by the end of the year to be cash-flow positive and to have more than $1 billion in cash and marketable securities on our balance sheet," Sherwood said in a statement.

As part of this effort, Sherwood said Gateway may take a restructuring charge this quarter that is "conservatively north of $80 million," related to cost-reduction plans. If it happens, the cost could be spread over three quarters.

"Demand in general remains soft," Sherwood said during the webcast to investors. "The macro picture is cloudy with the war (in Iraq) and overall economy."

Sherwood was not specific if there were layoffs in the works or about which product lines might be impacted. The company said it would detail those by the end of the quarter.

When Gateway issued its last earnings statement for 2002, the company posted a loss per share of $0.22. Gateway execs said the loss was tied into a previously announced partner dispute with AOL , but the outlook for the company has not been good.

Gateway was particularly hard hit last year saying its average PC unit price fell to $1,467 in the fourth quarter from $1,533 in the third quarter spurred by price wars from competition like Dell as well as seasonal promotions.

For 2003, Gateway had been keeping relatively quiet except to say it is preparing for a "no growth environment." The company is still planning to evaluate more than 120 Gateway Country Store leases.

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