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In Metamorphosis, Gateway Unveils New Products

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Computer maker Gateway said it is making progress on its designs to become a broader provider of information technology products and provided financial guidance in an annual investors meeting Thursday.

In an aggressive move to return to profitability and regain market share, the Poway, Calif. firm said it would roll out 15 new consumer electronics products, four new mobile products, three new systems and networking products (including a four-way server and an external storage device), as well as about 28 new software peripherals and accessories. Specifically, new offerings will include personal digital assistants, digital televisions, rear-projection TVs and a DVD player that can connect to a home network.

The strategy is part of Gateway’s plan to become a “branded integrator” to compete with the other systems vendors, which have been gaining traction despite weak spending. To do that, it must convince the public that it can produce new competitive offerings in addition to the consumer electronics mantle it has grown fond of.

Gateway has already scored a coup in the latter segment. According to NPD Consumer Data, the outfit has already made progress in the consumer electronics arena: its 42-inch plasma screen display has been the country’s best selling plasma TV from its November through February, with more than 7,500 units sold.

Dell Computer , too, is looking to become known more as a systems vendor than a maker of aggressively priced PCs. But Gateway has some catching up to do. The firm launched
its first compact rack-mount servers to run on Intel Xeon processors last month.

Late last year, the company announced its grid computing foray; threw its hat into the burgeoning Tablet PC ring; and like other vendors, partnered with an online subscription services provider to add value for its customers.

Partnering with the world’s largest software maker can only help. Friday the firm agreed with Microsoft to preload MSN 8 Internet software and MSN 8 dial-up access on all Gateway PCs. Consumers can sign up at Gateway stores to receive a CD to download the software, which includes communications, browsing and enhanced online safety features.

To catch up with the market leaders such as HP, IBM and Dell, Gateway has been furiously streamlining in the last several months, closing retail stores, laying off staff and making other adjustments in an attempt to save itself from extinction. Gateway said its cost-reduction programs are on track to achieve $200 million in annualized cost savings by the fourth quarter of 2003 and $200 million in savings in 2003.

The closing of Gateway Country stores is paving the way for five new pilot retail stores in the third quarter and the concern will remodel existing stores to accommodate its branded integrator strategy this fall.

Gateway reiterated to investors its previous guidance for the second quarter of revenue of $798 million and earnings per share (EPS) of 27 cents. It also confirmed that it is comfortable with the analysts’ consensus of 3Q revenue of $893 million and EPS of ($0.19), and fourth quarter revenue of $964 million and EPS of 9 cents.

Looking forward, Gateway said it hopes to meet gross margin objectives of 18 percent in 2004 and 20 percent in 2005, as well as steadily increasing total revenue of consumer electronics and non-PC revenue goals as 25 percent in 2003, 32 percent in 2004, and 40 percent in 2005. The firm aims to be cash flow positive by Q4 2003 and hold more than $1 billion in cash and marketable securities by year’s end.

“We are rapidly transforming Gateway into a branded integrator of technology
solutions and are making significant progress toward getting our PC business
profitable again,” Gateway chairman and CEO Ted Waitt said in a statement. “We are also on track to achieve substantial cost reductions, to introduce a range of new products, and to remodel our existing stores in an exciting way.”

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