Gateway slashes 25 percent of workforce

The Associated Press
Wednesday August 29, 2001

SAN DIEGO — Struggling personal computer maker Gateway announced Tuesday it is laying off about 5,000 employees – 25 percent of its global workforce – as it tries to cope with an increasingly bleak market. 

About 15 percent of the company’s U.S. workforce will be cut under the plan, which the company said will help it save $300 million annually. 

The company plans to close customer service and sales centers in Hampton, Va.; Vermillion, S.D.; Salt Lake City; and Lake Forest. It also plans to close an assembly plant in Salt Lake City. 

The company, with 19,000 employees worldwide, also said it will immediately close all of its company-owned operations in Malaysia, Singapore, Japan, Australia and New Zealand.  

Earlier this month, Gateway announced plans to close its European headquarters in Ireland. 

“We don’t have to be a global business to succeed,” Gateway founder, chairman and chief executive officer Ted Waitt said in a conference call to analysts Tuesday. “We know we can succeed in the U.S.” 

The computer maker said it will take a one-time charge of $475 million due to the restructuring and layoffs and expect to become profitable again in the fourth quarter of 2001. 

Tuesday’s announcement came after the end of trading as shares of Gateway closed at $8.60, off nearly 88 percent from a 52-week high. 

Eric Rothdeutsch, a computer industry analyst for Robertson Stephens in San Francisco, said he recommends investors “sit on the sidelines” until Gateway has demonstrated it can move away from its core hardware business and into services. 

The restructuring is the equivalent of “changing the company charter,” Rothdeutsch said. 

“I think the jury is going to be out for quite a while until they start to show some results,” he said. 

The layoffs follow an earlier wave of job cuts and a management shake-up which saw Waitt, the son of a cattleman, return to the company he and friend started in 1985 in a farmhouse in Sioux City, Iowa. Gateway’s costs ballooned last year after it opened 100 new Country Stores, with their trademark cowhide spots, in the United States and expanded internationally. In January, Wait returned from semiretirement and the company cut about 3,000 employees. In the spring, it closed 27 – about 10 percent – of its stores. 

Waitt said the layoffs are part of the company’s strategy to diversify its product line and return to profitability by the fourth quarter of fiscal 2001. 

“We feel pretty good about the strategic steps we are taking,” Waitt said. 

In July, Gateway said it planned to move beyond PC sales. Waitt said Tuesday Gateway would aggressively work to grow “beyond the box” by marketing home networks, training, software applications and financing packages for consumers, schools and small businesses. 

The PC industry has been hit hard by the slowing economy and saw its first-ever drop in sales this year. Some analysts predict it won’t recover until next year or early 2003. 

Gateway, the nation’s fourth-largest computer maker, has focussed heavily on the U.S. computer market, leaving it vulnerable to deteriorating domestic sales. 

Gateway had total global revenue of $9.6 billion in 2000.