Gateway hurt by millennium shortfall in sales

Despite the generally uneventful transition to the new millennium, PC maker Gateway has blamed the date rollover as a contributing factor in an expected shortfall in fourth quarter earnings.

The company claimed concerns over Y2K among businesses delayed sales in December, causing its business to business sales to decline around six per cent for the quarter.

This is against the trend of an overall increase in PC sales, and analysts have warned that many companies will use the Y2K rollover as an excuse for poor performance.

Dataquest analyst Thomas Reuner commented: "It's unlikely that Y2K had much of an effect on Gateway's results. If it had any impact at all, it was in larger accounts and Gateway is not normally strong in this area. It is stronger in the Soho and consumer markets."

"If I'm a cynic, then companies will be blaming everything for poor results. They blamed the Taiwan earthquake and that didn't happen until the last few days of the quarter. Blaming Y2K makes sense for companies like IBM offering services, but for pure hardware it doesn't makes sense at all," he added.

Gateway executives said that despite strong call volume and retail traffic during the holiday season, it predicted lower than expected revenue and earnings per share for the fourth quarter ended 31 December.

Along with Y2K concerns among large business and government and education institutions, the company cited previously announced processor supply issues for the shortfall.

When the company announces its fourth quarter and full year results, on 20 January, it expects to report revenue of around $2.45 billion for the fourth quarter, a six per cent increase over the same period the previous year.

After adjusting for a planned and previously announced charge in the quarter associated with Gateway's new partnership with America Online, the company said it expects earnings per share of approximately $0.37, which is $0.07 below analyst consensus expectations.

John Todd, senior vice president and chief financial officer, commented in a statement: "Supply of key processors and motherboards was severely constrained and unreliable, particularly in the consumer sweetspot in the $999 to $1299 price range."

"We're in the process of fixing that issue now and will have news on that front in the near future," he said. "Despite the sales shortfall, however, we enjoyed strong demand for our products. The launch of Astro, our new all in one PC, was a huge success, now accounting for almost 20 per cent of our consumer product mix."

Dataquest's Reuner said: "The fourth quarter was a disappointing one for Gateway [especially] as it was the Christmas quarter. However, the outlook for the company is generally very good - it is clever in the business arena."