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.
PHOTO: AP
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.
Gateway said it will close call centers in Hampton, Virginia; Vermillion, South Dakota; Lake Forest, California; and Salt Lake City. The company will keep open call centers in Sioux Falls and North Sioux City, South Dakota; Kansas City, Missouri; Rio Rancho, New Mexico; and Colorado Springs, Colorado. There won't be any firings in Gateway plants in North Sioux City, South Dakota, Waitt said.
Gateway said it's realigning into six business lines.
Besides PCs, they will include communications, applications, learning, financing and services. Gateway said it will begin reporting revenue and gross profit for each in the fourth quarter.
Gateway has offered those services for more than a year as part of its strategy, called "Beyond the Box,'' to sell products with higher margins than PCs.
"They've always been focused on those six areas," Niles said. "It isn't new stuff." The new model will enable the company eventually to have a 7 percent operating margin, Waitt said on a conference call.
"The question is when," he said.
Gateway averaged a 6.1 percent operating margin in the five years prior to 2001.
CFO Burke said the company is aiming for 7 percent by the second half of next year.
The non-PC lines have revenue of about US$120 billion and PCs add another US$100 billion, Waitt said.
"We're going after a much bigger pie than we've gone after before," Waitt said.
BUILDUP: US General Dan Caine said Chinese military maneuvers are not routine exercises, but instead are ‘rehearsals for a forced unification’ with Taiwan China poses an increasingly aggressive threat to the US and deterring Beijing is the Pentagon’s top regional priority amid its rapid military buildup and invasion drills near Taiwan, US Secretary of Defense Pete Hegseth said on Tuesday. “Our pacing threat is communist China,” Hegseth told the US House of Representatives Appropriations Subcommittee on Defense during an oversight hearing with US General Dan Caine, chairman of the Joint Chiefs of Staff. “Beijing is preparing for war in the Indo-Pacific as part of its broader strategy to dominate that region and then the world,” Hegseth said, adding that if it succeeds, it could derail
CHIP WAR: The new restrictions are expected to cut off China’s access to Taiwan’s technologies, materials and equipment essential to building AI semiconductors Taiwan has blacklisted Huawei Technologies Co (華為) and Semiconductor Manufacturing International Corp (SMIC, 中芯), dealing another major blow to the two companies spearheading China’s efforts to develop cutting-edge artificial intelligence (AI) chip technologies. The Ministry of Economic Affairs’ International Trade Administration has included Huawei, SMIC and several of their subsidiaries in an update of its so-called strategic high-tech commodities entity list, the latest version on its Web site showed on Saturday. It did not publicly announce the change. Other entities on the list include organizations such as the Taliban and al-Qaeda, as well as companies in China, Iran and elsewhere. Local companies need
CRITICISM: It is generally accepted that the Straits Forum is a CCP ‘united front’ platform, and anyone attending should maintain Taiwan’s dignity, the council said The Mainland Affairs Council (MAC) yesterday said it deeply regrets that former president Ma Ying-jeou (馬英九) echoed the Chinese Communist Party’s (CCP) “one China” principle and “united front” tactics by telling the Straits Forum that Taiwanese yearn for both sides of the Taiwan Strait to move toward “peace” and “integration.” The 17th annual Straits Forum yesterday opened in Xiamen, China, and while the Chinese Nationalist Party’s (KMT) local government heads were absent for the first time in 17 years, Ma attended the forum as “former KMT chairperson” and met with Chinese People’s Political Consultative Conference Chairman Wang Huning (王滬寧). Wang
CROSS-STRAIT: The MAC said it barred the Chinese officials from attending an event, because they failed to provide guarantees that Taiwan would be treated with respect The Mainland Affairs Council (MAC) on Friday night defended its decision to bar Chinese officials and tourism representatives from attending a tourism event in Taipei next month, citing the unsafe conditions for Taiwanese in China. The Taipei International Summer Travel Expo, organized by the Taiwan Tourism Exchange Association, is to run from July 18 to 21. China’s Taiwan Affairs Office spokeswoman Zhu Fenglian (朱鳳蓮) on Friday said that representatives from China’s travel industry were excluded from the expo. The Democratic Progressive Party government is obstructing cross-strait tourism exchange in a vain attempt to ignore the mainstream support for peaceful development
RSS