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Gateway CEO Looks to Rally Shareholders

Gateway Inc.’s interim chief executive tried his best to rally shareholders at the company’s annual meeting last week.

Shareholders likely were eager to hear Gateway’s strategy: Its stock hit a record low last week.

Interim leader Richard Snyder, who’s also chairman, said the Irvine-based computer maker can get on the right track by boosting sales to businesses, stoking direct online and phone sales, expanding globally and giving employees a vision of the future.

“I think it’s going to take a bit of time, but we’ll get there,” he said near the end of his remarks to shareholders at the Westin South Coast Plaza hotel. “This business is not rocket science.”

The company faces several challenges. It has no permanent chief executive, it’s been posting disappointing quarterly results and it faces numerous larger competitors.

During the annual meeting’s question-and-answer period, Snyder took a blunt question from an employee with the computer maker’s largest shareholder, San Diego-based Avalon Capital Group, the investment arm of Gateway founder Ted Waitt.

The Avalon representative asked whether Gateway was considering “strategic options to maximize shareholder value,” which could mean a restructuring, spinoff or sale of the company.

Snyder, who addressed perhaps 25 shareholders from a sparse stage, responded by saying any good company discusses every option, and said the company has had talks with investment bankers.

Using the word “exciting” more than a half dozen times during his roughly 20-minute presentation, Snyder said the company’s strategy can restore its spotty financials, which will help boost the company’s stock price.


Record-Low Stock Price

Shares of Gateway hit $1.67 last week, giving it a market value of about $650 million, down from a 52-week high of more than $1.5 billion during the past year.

Gateway’s first-quarter results didn’t help its stock slide. The computer maker reported a net loss of $12.3 million during the first quarter, which included charges of $14 million for legal expenses.

Without the litigation costs, Gateway would have posted net income of $1.7 million in the quarter, compared to a loss of about $21 million a year earlier. Analysts were looking for income of $7.4 million. Total revenue was $1.1 billion in the quarter, up 29% from a year earlier.

Gateway posted a 61% gain in retail sales during the quarter. Retail sales have been the company’s strong suit during the past few years. But revenue from Gateway’s direct and business units fell 27% and 4%, respectively, in the period.

A big problem for Gateway: Dell Inc.

Dell recently reported lower quarterly profits, and it’s been reducing prices,pushing competitors to do the same.

“Dell catches a cold; Gateway is going to catch pneumonia,” said Peter Labe, an analyst with Nutmeg Securities Ltd. in Fairfield, Conn.

Another concern for the company is finding a permanent chief executive.

The vacancy came in February when Wayne Inouye left the company. Inouye had led the company back to profitability after five years of red ink, but was blamed for not growing its direct and business units.


Snyder Not in Running

Snyder recently took his name out of the running for the position. He said Gateway could have a new chief executive by the end of the summer.

That would help ease the uncertainty around the stock, said Rob Enderle, principal analyst with the Enderle Group in San Jose.

Analyst Labe said there’s not a lot of reason to buy the stock right now.

“I think everybody is afraid to buy it at this point,” Labe said.

Snyder told shareholders the company can do well by continuing to stoke growth with the retail business. The direct business can improve by making Gateway’s Web site easier to navigate and computers simpler to configure.

Last week Gateway said it was building a plant in Nashville, Tenn. The facility is expected to make it easier for the company to quickly produce computers to customers’ preferences.

Gateway also said it’s consolidating a Kansas City call center operation in North Sioux City, N.D., in a cost-cutting move.

Bob Cole, a shareholder who attended the meeting, said after the presentation that the situation still was “scary.”

But he had some optimism about Gateway’s future turnaround.

“I think these people have what it takes,” he said.

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