The computer business is brutal,ask Gateway Inc.
Just after the Irvine-based PC maker cut its sales and profit guidance for the year earlier this month, market researcher Gartner Inc. said it expects worldwide PC revenue in 2005 to reach $202.7 billion, flat with last year. The reason: falling prices for portable computers.
While falling prices have been a consistent theme for desktop PCs, things haven’t been as bad for portables. In fact, robust sales and stable prices for portables have been a buoy for the industry in the past couple of years.
For Gateway, the road could be tough in the short term. With rivals such as Irvine-based Toshiba America Information Systems Inc., part of Japan’s Toshiba Corp., and Dell Inc. of Texas posting strong market share, Gateway has its work cut out in portables.
Gateway lowered its sales and profit guidance for the year earlier this month, citing competition and delays resolving tax issues.
The company said it now expects sales of $3.9 billion to $4 billion for the year, down from $4 billion to $4.25 billion it earlier expected.
Gateway could earn $45 million for the year, down from an earlier profit expectation of about $59 million.
The company also disappointed Wall Street with its second-quarter results. Gateway reported quarterly sales of $873.1 million, up 4% from a year ago.
Analysts had expected sales of $895 million, a 7% improvement from a year ago.
The market seems to have placed its bets. After Gartner came out with its report on Aug. 22, shares of Hewlett-Packard Co., Apple Computer Inc. and Dell all rose. Gateway fell.
But Gateway is a work in progress. Chief Executive Wayne Inouye came to power after Gateway’s buy last year of low-cost computer seller eMachines of Irvine.
Inouye, a former Best Buy Co. executive, is looking to adopt eMachines’ lean model at Gateway. And while the company might have seen competition eat at its profits during the past quarter, Inouye, with his background in retail PC sales, might be able to make up for that with higher volume, edging out other store-shelf rivals.
“We continue to make important strides through our highly scalable, low-overhead model,” Inouye said in a statement about the company’s recent earnings. “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.”
Adios TDK
It seems like only yesterday Irvine-based TDK Semiconductor Corp. was talking about a public offering.
Now the company is owned by a private equity firm and has a new name.
After more than a decade as the semiconductor arm of Japan’s TDK Corp., the old TDK Semiconductor recently changed its name to Teridian Semiconductor Corp.
In April, San Francisco private equity firm Golden Gate Capital LP bought what’s now Teridian for undisclosed terms.
TDK had considered spinning off the chip designer in a public offering in 2002. The company even hired investment banks for the offering, which could have raised $100 million, according to initial plans.
But TDK pulled back amid a soft market for chip stocks.
The name change is part of the company’s move away from TDK with the sale to Golden Gate.
The move “represents an important step in our evolution,” said Gerald Fitch, Teridian’s chief executive.
Teridian designs chips for networking gear, modems, smart card readers and other devices.
Emulex Fervor
It seems like the market can’t get enough of Costa Mesa’s Emulex Corp. The company’s stock has been riding high since its earnings earlier this month, climbing more than 10% in the past two weeks.
For the June quarter, the maker of network adapters for data storage computers posted a double-digit sales gain and a profit.
Emulex saw sales of $108.2 million, up 25% from a year ago. Net income came in at $25 million, versus a year-ago loss of $572 million related to the company’s buy of Vixel Corp.
Emulex benefited from sales of fibre channel host bus adapters, circuit boards used to network data storage computers.
Nearly all of Emulex’s sales in the quarter came from fibre channel adapters. Emulex’s reliance on adapters,once seen as a vulnerability,now is a positive, according to analysts.
Still, Emulex Chief Executive Paul Folino regularly mentions the need for the company to diversify its revenue, much the way rival QLogic Corp. of Aliso Viejo has.
About half of QLogic’s business comes from host bus adapters. About a fifth comes from controllers for disk drives. The rest comes from other storage networking gear products.
