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Gateway To Cut 1,500 Jobs After Q1 Loss

By Elizabeth Millard
Apr 30, 2004 2:09 PM PT

Gateway has reported preliminary results for its first quarter, showing a larger-than-expected loss. The company booked revenue of US$868 million during the period, with a net loss of $166 million, or 49 cents per share. Its first-quarter financial statements include the operations of eMachines, which Gateway acquired earlier this year.

Gateway To Cut 1,500 Jobs After Q1 Loss

Approximately $104 million of the loss is related to the shuttering in April of the company's 188 retail stores. Without that expense and a $13 million tax benefit, Gateway would have posted a $75 million loss.

In the report, Gateway made a series of statements about how it intends to operate now that it has closed its retail stores and is working to incorporate eMachines into its strategies.

Snip, Snip

Among the changes the company will be making in the coming year are more staff reductions, although it did not say which areas will see cuts. According to the report, 1,500 jobs will be cut. Currently, the company has about 3,500 employees.

Gateway spokesperson David Hallisey told the E-Commerce Times that the layoffs will be part of a larger strategy to streamline the company's operations.

Gateway is no stranger to conducting layoffs, especially in the recent past. When the company closed its chain of consumer electronics stores in early April, approximately 2,500 employees were cut.

The company also anticipates incurring restructuring costs of $400 million to $450 million this year, related to store closures, service and support contracts, and streamlining its IT infrastructure.

Looking Ahead

Despite the planned layoffs, Gateway is optimistic and said it expects to be profitable for 2005. The company also expects to be in line with current analyst estimates for second-quarter 2004 revenue of $798 million and a loss of 15 cents per share before restructuring expenses.

"We're in the midst of a concerted effort to fundamentally shift our cost structure," Hallisey said. To achieve that goal, Gateway plans to change its product mix, focus on honing its retail channel strategy and bolster its direct-sales activities.

Hallisey added that operations at the company will be easier now that the retail stores are not hindering Gateway's efforts. "The stores were very costly," he said. "They were extremely important last year when we got into the consumer electronics space, but they became less so over time."

Product Mix and Match

Although Hallisey did not elaborate on how Gateway's product mix will evolve, he did note that in the next year, the company will be making some changes. "We're going to streamline our product line," he said.

One product that is not destined for the chopping block is eMachines. Hallisey said the eMachines line will become the company's value brand, with Gateway as a premium brand.

The company is working to reduce the number of PC platforms in its consumer and professional lines, and to improve the use of common parts. These actions would enable cost reductions in component expenses and would allow for more effective customer support, according to Gateway.

Seller's Market

To bolster its presence in the marketplace now that its stores are closed, the company said it will pursue third-party retail relationships and will step up efforts to sell directly to business customers, educational institutions and government departments.

"This structure will help us to be more competitive," Hallisey said. "It should also makes us much more competitive in a bidding situation."

Negotiations with PC and electronics retailers in the United States and abroad are under way already. In today's statement, Gateway CEO Wayne Inouye said, "We're very encouraged by our discussions with potential retail partners, and we believe Gateway will have strong channel presence by the fourth quarter when demand will peak for the year."

Aiming for Back-to-School Demand

Hallisey noted that the company is intent on meeting holiday demand, but also will try to have improved product lines and retailer partners in place for the fall, when back-to-school purchases begin.

"We're going to be on retail shelves," he said. "It's just a matter of when."

IDC analyst Roger Kay told the E-Commerce Times that he was surprised the recent report did not detail more progress in terms of the retail situation. "I expected them to have a dozen new relationships and lay out what those were," he said. "That would have ameliorated the bad financial news with a glimpse of their future prospects. But it looks like they're not moving as fast as hoped or expected."


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