Shares of Irvine-based Gateway Inc. declined 9% Friday after the computer maker’s stock was downgraded by Piper Jaffray.
The Minneapolis investment bank lowered its rating on Gateway to “underperform” from “market perform,” citing increased pricing pressure and competition for the computer seller.
Gateway is selling more low-priced laptop and desktop computers, moving the company’s average selling price down, Piper Jaffray said in a report.
“The path to profitability at Gateway has become increasingly murky given the recent pricing developments in the PC segment and more aggressive competitors,” Piper Jaffray said.
The downgrade is the second one from Piper Jaffray in the past two weeks. It downgraded Gateway shares from “outperform” to “market perform” after Gateway said it expects sales of $3.9 billion to $4 billion in 2005, down from $4 billion to $4.25 billion it earlier expected.
The company also disappointed Wall Street with its second-quarter results. Gateway reported quarterly sales of $873 million, up 4% from a year ago. Analysts had expected sales of $895 million.
Gateway reported an operating profit of $17.6 million in the quarter, helped by a settlement payment from Microsoft Corp.
Three other Wall Street investment banks, including Bear Stearns, downgraded Gateway shares after the earnings report.
Even so, Gateway chief executive Wayne Inouye has said the company is on track toward a more efficiently operating company.
“While we had to contend with gross margin pressure in all our major business units in the second quarter due to competitive pressures, our performance shows we remain on track toward our long-term growth goals and that we continue to make important strides through our highly scalable, low-overhead model,” Inouye said in the company’s earnings press release. “While we have much work to do, we continue to believe we have a model of operational efficiency and customer intimacy that is a winner over the long term.”
Gateway shares were trading at $2.75 on Friday.
