Gateway Inc, the second-largest direct seller of personal computers, plans to fire about 5,000 employees, or 25 percent of its workforce, as part of a plan to revive profit by halting business in Asia and possibly Europe. The company's shares rose as much as 9.3 percent on Tuesday.
Gateway will take US$475 million in third-quarter charges and forecast a loss for the period. The San Diego-based company expects to be profitable before taxes in the fourth quarter.
The company, which now has 20,000 workers, said the plan will save US$300 million a year.
The PC maker has reported three straight quarterly losses as demand slumped and Dell Computer Corp, Gateway's biggest rival, cut prices. Gateway has said it would have been profitable in the second quarter without its business outside the US. The company will close a Salt Lake City plant plus all company-owned operations in Malaysia, Singapore, Japan, Australia and New Zealand and will disclose plans for Europe within 30 days.
"The opportunities are here in the US," Ted Waitt, Gateway's founder and chief executive, said. "We don't have to be a global business to succeed. We know we can succeed in the US. There's always a chance" of keeping Gateway's business open in Europe, he said.
"You have to look at the reality of the situation," he said. "It's difficult to execute our strategy."
Gateway shares rose as high as US$9.40 in after-hours trading following the announcement. They rose US$10 to US$8.60 in regular trading before the release. The stock has fallen 87 percent in the past year.
The company expects to have US$1 billion in cash and marketable securities by the end of the year. For the second quarter ended June 30, Gateway reported US$1.03 billion in cash and marketable securities.
Standard & Poor's Corp last week lowered Gateway's credit ratings to junk status, "BB," from "BBB-." The shares fell 12 percent the following day.
"Liquidity is not a problem," said Dan Niles, an analyst with Lehman Brothers who owns no shares in Gateway. "The market reacted negatively for no apparent reason."
Chief Financial Officer Joe Burke said Gateway doesn't have much debt and said Moody's Investors Service has kept it at an investment-grade rating.
Gateway said that excluding charges, it expects to be "marginally profitable" in the second half of this year. Analysts predicted a loss of US$0.01 a share in the third quarter and a profit of US$0.03 in the fourth quarter, according to Thomson Financial/First Call.
"It's not a disaster," Niles said. "It could have been a lot worse. It will be a couple of quarters before we get a sense of the operations."
Besides a plant and European headquarters in Ireland, Gateway has 18 retail stores in Europe. Its 36 stores in Asia and a plant in Malaysia will be closed. Its 18 stores in Australia and New Zealand have closed. Gateway last year had sales of US$1.36 billion in Asian and European markets.
Outside the US, Gateway didn't have adequate distribution channels, its brand wasn't well-known and it was difficult to work with foreign partners, Waitt said.
Waitt, 38, returned as Gateway's CEO in January after a year's absence. He fired his hand-picked successor, Jeff Weitzen, and six other executives after sales and profit began to slide.
The firings announced include eliminating 15 percent of Gateway's US workforce, or 2,625 employees. About 219 Gateway employees in Australia and New Zealand were fired, the company said in statement. About 400 people who worked at its Melaka manufacturing facility in Malaysia were fired and another 28 based in Singapore, Gateway said.
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