Gateway Reports First Quarter Results

Company Outlines Restructuring Charges and

Progress Against Revitalization Plan



Remains on Track to Meet Unit Growth and Operating Profit Goals



Cash and Marketable Securities Exceeds $1.0 Billion



Apr 19, 2001, 01:00 ET from Gateway Inc.

    SAN DIEGO, April 19 /PRNewswire/ -- Gateway Inc. (NYSE:   GTW) today
 reported a first quarter loss driven primarily by previously announced special
 charges to earnings and additional strategic restructuring decisions to
 position the company for a return to profitable growth.
     In the first quarter of 2001, Gateway posted sales of $2.03 billion, a
 15 percent decline over the same period last year, and had a net loss of
 $503 million, or $1.56 per diluted share, including the pre-tax effects of
 $533 million of special charges, as well as the $24 million cumulative effect
 of implementing a new accounting principle.  During the same period last year,
 the company had net income of $120 million, or $0.36 per diluted share.
     "We're making solid progress against our revitalization plans," said Ted
 Waitt, Gateway chairman and chief executive officer.  "In order to get our
 business in fighting form for the second half of 2001, we're moving with speed
 and aggressiveness to make the appropriate operational improvements to our
 business now.  I'm confident that with the steps we're taking, we'll emerge a
 much stronger and more profitable company and will exit the current quarter
 with some solid momentum across our business. "
 
     Quarterly Sales
     During the first quarter, Gateway sold 1.1 million units worldwide, down
 12 percent year over year and down 14 percent from the fourth quarter of 2000.
 Gateway's U.S. Consumer unit saw revenues decline 19 percent year over year in
 the quarter, while its U.S. Business unit posted a 6 percent increase in
 revenues, with a notable 13 percent increase in sales to small and medium
 businesses over the prior year.
     In Gateway's international operations, the company's European operations
 posted a 38 percent decline in revenues for the quarter over the same period
 last year, with its Asia-Pacific group posting a 32 percent decline.
     Revenue was impacted in the quarter and will be impacted in future
 quarters by actions being taken to eliminate certain less-profitable revenue
 streams.  These actions include, among other things, the closure of under-
 performing retail locations, a rationalization of international markets,
 elimination of most indirect sales efforts, a modification of the company's
 ISP business model and the decision to discontinue the purchase of lesser-
 quality consumer finance receivables, outlined below.
     "We're taking advantage of the current demand environment to take the
 necessary steps to get our business back in shape for the second half of the
 year," Waitt said.  "While our revenue performance in the quarter was
 negatively impacted by our own strategic decision to focus on more profitable
 revenue streams going forward, this is a strategy that should yield healthier
 shareholder returns both now and in the future.  Going forward, we intend to
 capture more than our fair share of the market by offering unbeatable value
 and the best customer service and support in the industry.  In fact, our early
 efforts are showing signs of gaining traction in those two areas."
     In the past six weeks, the company has taken steps to price more
 competitively and is in the process of repositioning its marketing efforts to
 drive more traffic to its existing Gateway Country stores in the U.S., which
 serves both the Consumer and Business sales organizations.  In addition, the
 company has taken a number of steps to increase customer satisfaction, from
 retraining its sales force to eliminating tech support policies that
 previously had a negative effect on the company's overall customer experience.
 As a result, Gateway's internal tracking measurements show that customer
 satisfaction scores increased nearly 15 percent in the month of March alone,
 to their highest levels in the more than two years the company has been
 tracking such results.
     In an effort to provide better visibility to the sale of non-PC products
 and services, which Gateway has called beyond-the-box sales, the company will
 now begin to report the sale of beyond-the-box items both at the point of
 sale, and after the sale.  Therefore, Gateway will now begin to report an
 average selling price (ASP) metric, which is the sum of the PC and non-PC
 products and services purchased with the PC at the point of sale.  In the
 first quarter, the ASP was $1,723.
     Total beyond-the-box sales amounted to 23 percent of revenue and
 41 percent of gross profit in the first quarter, versus 14 and 29 percent
 respectively for the same period last year.  Approximately $326 million of the
 beyond-the-box revenue in the first quarter occurred at the point of sale and
 is accordingly included in the ASP calculation, while $141 million was from
 after the point of sale.
     "Beyond-the-box remains a critical element of profitable growth for
 Gateway, and is a cornerstone of our commitment to lifelong relationships with
 our customers," Waitt said.  "By breaking out beyond-the-box sales in this new
 way, we'll better illustrate the nature of this important stream of revenue
 and profit both at the point of sale and beyond."
 
     Restructuring Steps
     In the first quarter, Gateway began restructuring the business to improve
 its position.  As a result, the company recorded $533 million of special
 charges, consisting of $250 million of charges relating to restructuring steps
 previously announced and estimated to be in this range in late February, and
 the balance primarily related to subsequent strategic decisions concerning the
 technology and other assets acquired from NECX Direct and the company's
 consumer loan portfolio.
     Approximately $430 million of the $533 million charges are non-cash.
     Special charges for previously announced restructuring steps consisted of
 $39 million to cover productivity initiatives following the previously
 announced 12 percent reduction in force and the departure of senior
 executives; an $83 million write-down covering domestic facilities and capital
 assets; $75 million for the closing of underperforming retail locations in the
 U.S. and Canada; $38 million for restructuring of international operations and
 $15 million for other items.  Subsequent strategic decisions included an IT
 systems restructuring of the company's e-commerce operations, primarily
 Gateway's online peripherals store.  This resulted in the abandonment of the
 intellectual property and technology acquired in the NECX acquisition and the
 write-down of the remaining $140 million of goodwill and other intangibles
 associated with that acquisition.
     In addition, while the company will continue to offer customer financing,
 it decided to discontinue providing customer financing to lesser quality
 credits, and to sell the substantial balance of its existing consumer loan
 portfolio consisting of these credits.  Therefore, the company took a
 $100 million charge in the first quarter to write-down its loan portfolio to
 estimated realizable value.  Earlier this year, the company sold approximately
 $500 million of its portfolio, consisting of higher-tiered credits, at par.
 
     Pre-tax Income (Loss)
     Gross profit margin for the quarter was 9.7 percent.  Excluding the
 effects of Gateway's consumer loan portfolio and special charges, gross profit
 margin would have been 18.5 percent for the first quarter of this year while
 it was 21.6 percent for the same period last year.
     Selling, General & Administrative (SG&A) expenses were $773 million in the
 first quarter.  Excluding special charges, first quarter SG&A expenses were
 $384 million, or 18.9 percent of revenue, down sequentially from the fourth
 quarter of 2000.  SG&A expenses were 13.8 percent of revenue for the same
 period last year.
     Excluding the above-described special charges, the company had a pre-tax
 loss of $81 million in the quarter.  The operating loss associated with the
 consumer loan portfolio was $75 million for the first quarter and is included
 in this $81 million pre-tax loss.  Excluding this loss on the portfolio and
 the special charges, Gateway had a pre-tax loss of approximately $6 million in
 the first quarter.
 
     Accounting Change
     Statement of Financial Accounting Standards No. 133 changed the accounting
 rules for derivatives, warrants, options and other financial instruments.
 Gateway adopted this new standard in the first quarter of 2001, as required.
 The cumulative effect of these changes for positions held as of Dec. 31, 2000,
 was a one-time, non-cash charge of $24 million net of tax.  The impact of
 applying these new accounting rules in the first quarter increased the pre-tax
 loss by $5 million.
 
     Balance Sheet Highlights
     Gateway exited the first quarter with $1.1 billion in cash and marketable
 securities, its strongest cash position since the second quarter of last year
 and nearly twice the level the company had at the end of 2000, while its
 inventory turns increased to 28 times, its highest level in the past 12
 months.
     "The restructuring steps we're taking are already having a positive effect
 both on our balance sheet and the underlying health of our current and future
 business from an operating perspective," said Joseph Burke, senior vice
 president and chief financial officer.  "We would have essentially broken even
 from an operating perspective in the first quarter, as per our earlier
 guidance, excluding the effects of the special charges and losses on the now
 discontinued lower quality consumer financing business."
 
     Outlook
     Gateway believes it is still on track to deliver against its unit growth
 guidance and bottom line goals.  The company expects to approximately break
 even on an income from continuing operations basis, excluding special charges,
 during the remainder of the first half of the year, despite seeing unit sales
 down slightly over 2000.  For the second half of the year, the company expects
 unit sales to be up as compared with last year, and expects to return to
 profitability on an income from continuing operations basis.
     During the second and third quarters, the company expects pre-tax special
 charges of $25 million and $10 million respectively, related to the strategic
 restructuring decisions made in the first quarter associated primarily with
 retail and international activities.
     Gateway also said that its cost-cutting steps will continue to have a
 positive effect on the level of SG&A expenses throughout the balance of the
 year.
 
     Annual meeting
     The 2001 Annual Meeting of shareholders of Gateway will be held on May 17,
 2001, at the Sioux City Convention Center, 801 Fourth Street, Sioux City,
 Iowa, at 9:00 a.m. CDT.
 
     About Gateway
     Gateway (NYSE:   GTW) a Fortune 500(R) company founded in 1985, focuses on
 building lifelong relationships with consumers, small and medium businesses
 and government and education institutions by helping clients meet all their
 technology needs.  Gateway is ranked as the most admired American company in
 the Computers and Office Equipment industry in a Fortune Magazine survey (1)
 and is the top brand in customer loyalty and for first-time home computer
 purchases of Wintel-based PCs (2).  The company had total global revenue of
 $9.6 billion in 2000.  For more information, visit our Web site at
 www.gateway.com.
 
     Special Note
     This press release contains forward-looking statements that involve risks
 and uncertainties, as well as assumptions that, if they do not materialize or
 prove incorrect, could cause Gateway's results to differ materially from those
 expressed or implied by such forward-looking statements.  All statements,
 other than statements of historical fact, are statements that could be deemed
 forward-looking statements, including any projections of earnings, revenues,
 or other financial items; any statements of plans, strategies and objectives
 of management for future operations; any statements regarding proposed new
 products, services or developments; any statements regarding future economic
 conditions or performance; statements of belief and any statement of
 assumptions underlying any of the foregoing.  The risks that contribute to the
 uncertain nature of these statements include, among others, competitive
 factors and pricing pressures, including the impact of aggressive pricing cuts
 by larger competitors; general conditions in the personal computing industry,
 including changes in overall demand and average unit prices, shifts from
 desktops to mobile computing products and information appliances and the
 impact of new microprocessors and operating software; component supply
 shortages; short product cycles; the ability to access new technology;
 infrastructure requirements; risks of international business; foreign currency
 fluctuations; ability to grow in e-commerce; risks of minority equity
 investments; risks relating to new or acquired businesses, joint ventures and
 strategic alliances; risks related to financing customer orders; changes in
 accounting rules, the impact of litigation and government regulation
 generally; inventory risks due to shifts in market demand; changes in product,
 customer or geographic sales mix; the impact of employee reductions and
 management changes and additions; and general economic conditions, and other
 risks described from time to time in Gateway's Securities and Exchange
 Commission periodic reports and filings.  The Company assumes no obligation to
 update these forward-looking statements to reflect events that occur or
 circumstances that exist after the date on which they were made.
 
     (1) Fortune Magazine, "America's Most Admired Companies,"
         February 19, 2001.
     (2) From the Harris Interactive Consumer TechPoll(SM) study of 140,000
         PC owners who use the Internet, released March 5, 2001.
 
 
                                    Gateway
                     Consolidated Statements of Operations
                    (in thousands, except per share amounts)
 
                                          Three months ended March 31
                                           2001               2000
                                                  (unaudited)
 
     Net sales                           $2,033,510          $2,398,950
     Cost of goods sold                   1,836,205           1,880,448
         Gross profit                       197,305             518,502
     Selling, general, and
      administrative expenses               773,260             332,238
         Operating income (loss)           (575,955)            186,264
     Other, net                             (38,215)             17,599
         Income (loss) before income
          taxes and cumulative effect
          of change in accounting
          principle                        (614,170)            203,863
     Provision for income taxes            (135,117)             72,372
         Net income (loss) before
          cumulative effect of change
          in accounting principle          (479,053)            131,491
     Cumulative effect of change
      in accounting principle, net          (23,851)            (11,851)
         Net income (loss)                $(502,904)           $119,640
 
     Net income (loss) per share
      before cumulative effect of change
      in accounting principle:
       Basic                                $(1.48)               $0.41
       Diluted                              $(1.48)               $0.40
     Net income (loss) per share:
       Basic                                $(1.56)               $0.37
       Diluted                              $(1.56)               $0.36
     Basic weighted average
      shares outstanding                    322,868             320,013
     Diluted weighted average
      shares outstanding                    322,868             332,541
 
 
                                    Gateway
                           Consolidated Balance Sheet
                                 (in thousands)
 
                                        March 31, 2001     December 31, 2000
        ASSETS:                           (unaudited)
     Current assets:
       Cash and cash equivalents           $906,101            $483,997
       Marketable securities                205,258             130,073
       Accounts receivable, net             433,074             544,755
       Inventory                            184,830             315,069
       Other                                525,300             793,166
         Total current assets             2,254,563           2,267,060
     Property, plant, and
      equipment, net                        785,404             897,414
     Intangibles, net                        46,989             165,914
     Other assets                           533,007             822,156
                                         $3,619,963          $4,152,544
 
       LIABILITIES AND STOCKHOLDERS' EQUITY:
     Current liabilities:
       Accounts payable                    $554,993            $785,345
       Accrued liabilities                  585,828             556,323
       Accrued royalties                    142,354             138,446
       Other current liabilities            131,301             150,920
         Total current liabilities        1,414,476           1,631,034
     Other long-term liabilities            346,214             141,171
       Total liabilities                  1,760,690           1,772,205
     Stockholders' equity                 1,859,273           2,380,339
                                         $3,619,963          $4,152,544
 
 
                                    Gateway
                Analysis of Consolidated Statement of Operations
                                 (in thousands)
                                  (unaudited)
 
                                        Three months ended March 31, 2001
 
                                     Excluding        Special    As Reported
                                  Special Charges     Charges
 
     Net sales                      $2,033,510            $--    $2,033,510
     Cost of goods sold              1,736,244         99,961 (1) 1,836,205
         Gross profit                  297,266        (99,961)      197,305
     Selling, general, and
      administrative expenses          383,691        389,569 (2)   773,260
         Operating loss                (86,425)      (489,530)     (575,955)
     Other, net                          5,160        (43,375)(3)   (38,215)
         Loss before income taxes
          and cumulative effect of
          change in accounting
          principle                    (81,265)      (532,905)     (614,170)
     Provision for income taxes        (26,127)      (108,990)     (135,117)
         Net loss before cumulative
          effect of change in
          accounting principle         (55,138)      (423,915)     (479,053)
     Cumulative effect of change
      in accounting principle, net     (23,851)            --       (23,851)
         Net loss                     $(78,989)     $(423,915)    $(502,904)
 
     (1) Represents a write down of the Company's consumer loan portfolio as
         it is prepared for disposition by sale.
 
     (2) Consists of $140 million related to the impairment of the goodwill and
         other assets acquired in the acquisition of NECX Direct, $83 million
         related to the write-down of domestic facilities and capital assets,
         $75 million for the closing of underperforming retail locations in the
         United States and Canada, $39 million related to productivity
         initiatives following the 12 percent reduction in force and the
         departure of senior executives, $38 million related to the
         restructuring of international operations and $15 million for other
         items.
 
     (3) Represents the write down of securities and long-term receivables
         associated with a strategic restructuring decision.
 
 
                                    Gateway
                       Three Months Ended March 31, 2001
                                Special Charges
                                 (in millions)
 
                                            Estimated
                                              Range               Actual
                                                      (unaudited)
     Productivity Initiatives                $35-60                 $39
     Facilities/Capital Assets               35-100                  83
     Operating Assets                         45-65                  75
     International Restructuring              30-36                  38
     Other                                     5-14                  15
     New Strategic Decisions                    N/A                 283 (1)
                                           $150-275                $533
 
     (1) Decisions made subsequent to March 3, 2001 consist primarily of the
         planned abandonment of the intellectual property and technology
         acquired in connection with the acquisition of NECX Direct and the
         decision to not only discontinue the purchase of lesser quality
         consumer finance receivables but also to sell the existing portfolio
         which is related primarily to same.
 
 

SOURCE Gateway Inc.
    SAN DIEGO, April 19 /PRNewswire/ -- Gateway Inc. (NYSE:   GTW) today
 reported a first quarter loss driven primarily by previously announced special
 charges to earnings and additional strategic restructuring decisions to
 position the company for a return to profitable growth.
     In the first quarter of 2001, Gateway posted sales of $2.03 billion, a
 15 percent decline over the same period last year, and had a net loss of
 $503 million, or $1.56 per diluted share, including the pre-tax effects of
 $533 million of special charges, as well as the $24 million cumulative effect
 of implementing a new accounting principle.  During the same period last year,
 the company had net income of $120 million, or $0.36 per diluted share.
     "We're making solid progress against our revitalization plans," said Ted
 Waitt, Gateway chairman and chief executive officer.  "In order to get our
 business in fighting form for the second half of 2001, we're moving with speed
 and aggressiveness to make the appropriate operational improvements to our
 business now.  I'm confident that with the steps we're taking, we'll emerge a
 much stronger and more profitable company and will exit the current quarter
 with some solid momentum across our business. "
 
     Quarterly Sales
     During the first quarter, Gateway sold 1.1 million units worldwide, down
 12 percent year over year and down 14 percent from the fourth quarter of 2000.
 Gateway's U.S. Consumer unit saw revenues decline 19 percent year over year in
 the quarter, while its U.S. Business unit posted a 6 percent increase in
 revenues, with a notable 13 percent increase in sales to small and medium
 businesses over the prior year.
     In Gateway's international operations, the company's European operations
 posted a 38 percent decline in revenues for the quarter over the same period
 last year, with its Asia-Pacific group posting a 32 percent decline.
     Revenue was impacted in the quarter and will be impacted in future
 quarters by actions being taken to eliminate certain less-profitable revenue
 streams.  These actions include, among other things, the closure of under-
 performing retail locations, a rationalization of international markets,
 elimination of most indirect sales efforts, a modification of the company's
 ISP business model and the decision to discontinue the purchase of lesser-
 quality consumer finance receivables, outlined below.
     "We're taking advantage of the current demand environment to take the
 necessary steps to get our business back in shape for the second half of the
 year," Waitt said.  "While our revenue performance in the quarter was
 negatively impacted by our own strategic decision to focus on more profitable
 revenue streams going forward, this is a strategy that should yield healthier
 shareholder returns both now and in the future.  Going forward, we intend to
 capture more than our fair share of the market by offering unbeatable value
 and the best customer service and support in the industry.  In fact, our early
 efforts are showing signs of gaining traction in those two areas."
     In the past six weeks, the company has taken steps to price more
 competitively and is in the process of repositioning its marketing efforts to
 drive more traffic to its existing Gateway Country stores in the U.S., which
 serves both the Consumer and Business sales organizations.  In addition, the
 company has taken a number of steps to increase customer satisfaction, from
 retraining its sales force to eliminating tech support policies that
 previously had a negative effect on the company's overall customer experience.
 As a result, Gateway's internal tracking measurements show that customer
 satisfaction scores increased nearly 15 percent in the month of March alone,
 to their highest levels in the more than two years the company has been
 tracking such results.
     In an effort to provide better visibility to the sale of non-PC products
 and services, which Gateway has called beyond-the-box sales, the company will
 now begin to report the sale of beyond-the-box items both at the point of
 sale, and after the sale.  Therefore, Gateway will now begin to report an
 average selling price (ASP) metric, which is the sum of the PC and non-PC
 products and services purchased with the PC at the point of sale.  In the
 first quarter, the ASP was $1,723.
     Total beyond-the-box sales amounted to 23 percent of revenue and
 41 percent of gross profit in the first quarter, versus 14 and 29 percent
 respectively for the same period last year.  Approximately $326 million of the
 beyond-the-box revenue in the first quarter occurred at the point of sale and
 is accordingly included in the ASP calculation, while $141 million was from
 after the point of sale.
     "Beyond-the-box remains a critical element of profitable growth for
 Gateway, and is a cornerstone of our commitment to lifelong relationships with
 our customers," Waitt said.  "By breaking out beyond-the-box sales in this new
 way, we'll better illustrate the nature of this important stream of revenue
 and profit both at the point of sale and beyond."
 
     Restructuring Steps
     In the first quarter, Gateway began restructuring the business to improve
 its position.  As a result, the company recorded $533 million of special
 charges, consisting of $250 million of charges relating to restructuring steps
 previously announced and estimated to be in this range in late February, and
 the balance primarily related to subsequent strategic decisions concerning the
 technology and other assets acquired from NECX Direct and the company's
 consumer loan portfolio.
     Approximately $430 million of the $533 million charges are non-cash.
     Special charges for previously announced restructuring steps consisted of
 $39 million to cover productivity initiatives following the previously
 announced 12 percent reduction in force and the departure of senior
 executives; an $83 million write-down covering domestic facilities and capital
 assets; $75 million for the closing of underperforming retail locations in the
 U.S. and Canada; $38 million for restructuring of international operations and
 $15 million for other items.  Subsequent strategic decisions included an IT
 systems restructuring of the company's e-commerce operations, primarily
 Gateway's online peripherals store.  This resulted in the abandonment of the
 intellectual property and technology acquired in the NECX acquisition and the
 write-down of the remaining $140 million of goodwill and other intangibles
 associated with that acquisition.
     In addition, while the company will continue to offer customer financing,
 it decided to discontinue providing customer financing to lesser quality
 credits, and to sell the substantial balance of its existing consumer loan
 portfolio consisting of these credits.  Therefore, the company took a
 $100 million charge in the first quarter to write-down its loan portfolio to
 estimated realizable value.  Earlier this year, the company sold approximately
 $500 million of its portfolio, consisting of higher-tiered credits, at par.
 
     Pre-tax Income (Loss)
     Gross profit margin for the quarter was 9.7 percent.  Excluding the
 effects of Gateway's consumer loan portfolio and special charges, gross profit
 margin would have been 18.5 percent for the first quarter of this year while
 it was 21.6 percent for the same period last year.
     Selling, General & Administrative (SG&A) expenses were $773 million in the
 first quarter.  Excluding special charges, first quarter SG&A expenses were
 $384 million, or 18.9 percent of revenue, down sequentially from the fourth
 quarter of 2000.  SG&A expenses were 13.8 percent of revenue for the same
 period last year.
     Excluding the above-described special charges, the company had a pre-tax
 loss of $81 million in the quarter.  The operating loss associated with the
 consumer loan portfolio was $75 million for the first quarter and is included
 in this $81 million pre-tax loss.  Excluding this loss on the portfolio and
 the special charges, Gateway had a pre-tax loss of approximately $6 million in
 the first quarter.
 
     Accounting Change
     Statement of Financial Accounting Standards No. 133 changed the accounting
 rules for derivatives, warrants, options and other financial instruments.
 Gateway adopted this new standard in the first quarter of 2001, as required.
 The cumulative effect of these changes for positions held as of Dec. 31, 2000,
 was a one-time, non-cash charge of $24 million net of tax.  The impact of
 applying these new accounting rules in the first quarter increased the pre-tax
 loss by $5 million.
 
     Balance Sheet Highlights
     Gateway exited the first quarter with $1.1 billion in cash and marketable
 securities, its strongest cash position since the second quarter of last year
 and nearly twice the level the company had at the end of 2000, while its
 inventory turns increased to 28 times, its highest level in the past 12
 months.
     "The restructuring steps we're taking are already having a positive effect
 both on our balance sheet and the underlying health of our current and future
 business from an operating perspective," said Joseph Burke, senior vice
 president and chief financial officer.  "We would have essentially broken even
 from an operating perspective in the first quarter, as per our earlier
 guidance, excluding the effects of the special charges and losses on the now
 discontinued lower quality consumer financing business."
 
     Outlook
     Gateway believes it is still on track to deliver against its unit growth
 guidance and bottom line goals.  The company expects to approximately break
 even on an income from continuing operations basis, excluding special charges,
 during the remainder of the first half of the year, despite seeing unit sales
 down slightly over 2000.  For the second half of the year, the company expects
 unit sales to be up as compared with last year, and expects to return to
 profitability on an income from continuing operations basis.
     During the second and third quarters, the company expects pre-tax special
 charges of $25 million and $10 million respectively, related to the strategic
 restructuring decisions made in the first quarter associated primarily with
 retail and international activities.
     Gateway also said that its cost-cutting steps will continue to have a
 positive effect on the level of SG&A expenses throughout the balance of the
 year.
 
     Annual meeting
     The 2001 Annual Meeting of shareholders of Gateway will be held on May 17,
 2001, at the Sioux City Convention Center, 801 Fourth Street, Sioux City,
 Iowa, at 9:00 a.m. CDT.
 
     About Gateway
     Gateway (NYSE:   GTW) a Fortune 500(R) company founded in 1985, focuses on
 building lifelong relationships with consumers, small and medium businesses
 and government and education institutions by helping clients meet all their
 technology needs.  Gateway is ranked as the most admired American company in
 the Computers and Office Equipment industry in a Fortune Magazine survey (1)
 and is the top brand in customer loyalty and for first-time home computer
 purchases of Wintel-based PCs (2).  The company had total global revenue of
 $9.6 billion in 2000.  For more information, visit our Web site at
 www.gateway.com.
 
     Special Note
     This press release contains forward-looking statements that involve risks
 and uncertainties, as well as assumptions that, if they do not materialize or
 prove incorrect, could cause Gateway's results to differ materially from those
 expressed or implied by such forward-looking statements.  All statements,
 other than statements of historical fact, are statements that could be deemed
 forward-looking statements, including any projections of earnings, revenues,
 or other financial items; any statements of plans, strategies and objectives
 of management for future operations; any statements regarding proposed new
 products, services or developments; any statements regarding future economic
 conditions or performance; statements of belief and any statement of
 assumptions underlying any of the foregoing.  The risks that contribute to the
 uncertain nature of these statements include, among others, competitive
 factors and pricing pressures, including the impact of aggressive pricing cuts
 by larger competitors; general conditions in the personal computing industry,
 including changes in overall demand and average unit prices, shifts from
 desktops to mobile computing products and information appliances and the
 impact of new microprocessors and operating software; component supply
 shortages; short product cycles; the ability to access new technology;
 infrastructure requirements; risks of international business; foreign currency
 fluctuations; ability to grow in e-commerce; risks of minority equity
 investments; risks relating to new or acquired businesses, joint ventures and
 strategic alliances; risks related to financing customer orders; changes in
 accounting rules, the impact of litigation and government regulation
 generally; inventory risks due to shifts in market demand; changes in product,
 customer or geographic sales mix; the impact of employee reductions and
 management changes and additions; and general economic conditions, and other
 risks described from time to time in Gateway's Securities and Exchange
 Commission periodic reports and filings.  The Company assumes no obligation to
 update these forward-looking statements to reflect events that occur or
 circumstances that exist after the date on which they were made.
 
     (1) Fortune Magazine, "America's Most Admired Companies,"
         February 19, 2001.
     (2) From the Harris Interactive Consumer TechPoll(SM) study of 140,000
         PC owners who use the Internet, released March 5, 2001.
 
 
                                    Gateway
                     Consolidated Statements of Operations
                    (in thousands, except per share amounts)
 
                                          Three months ended March 31
                                           2001               2000
                                                  (unaudited)
 
     Net sales                           $2,033,510          $2,398,950
     Cost of goods sold                   1,836,205           1,880,448
         Gross profit                       197,305             518,502
     Selling, general, and
      administrative expenses               773,260             332,238
         Operating income (loss)           (575,955)            186,264
     Other, net                             (38,215)             17,599
         Income (loss) before income
          taxes and cumulative effect
          of change in accounting
          principle                        (614,170)            203,863
     Provision for income taxes            (135,117)             72,372
         Net income (loss) before
          cumulative effect of change
          in accounting principle          (479,053)            131,491
     Cumulative effect of change
      in accounting principle, net          (23,851)            (11,851)
         Net income (loss)                $(502,904)           $119,640
 
     Net income (loss) per share
      before cumulative effect of change
      in accounting principle:
       Basic                                $(1.48)               $0.41
       Diluted                              $(1.48)               $0.40
     Net income (loss) per share:
       Basic                                $(1.56)               $0.37
       Diluted                              $(1.56)               $0.36
     Basic weighted average
      shares outstanding                    322,868             320,013
     Diluted weighted average
      shares outstanding                    322,868             332,541
 
 
                                    Gateway
                           Consolidated Balance Sheet
                                 (in thousands)
 
                                        March 31, 2001     December 31, 2000
        ASSETS:                           (unaudited)
     Current assets:
       Cash and cash equivalents           $906,101            $483,997
       Marketable securities                205,258             130,073
       Accounts receivable, net             433,074             544,755
       Inventory                            184,830             315,069
       Other                                525,300             793,166
         Total current assets             2,254,563           2,267,060
     Property, plant, and
      equipment, net                        785,404             897,414
     Intangibles, net                        46,989             165,914
     Other assets                           533,007             822,156
                                         $3,619,963          $4,152,544
 
       LIABILITIES AND STOCKHOLDERS' EQUITY:
     Current liabilities:
       Accounts payable                    $554,993            $785,345
       Accrued liabilities                  585,828             556,323
       Accrued royalties                    142,354             138,446
       Other current liabilities            131,301             150,920
         Total current liabilities        1,414,476           1,631,034
     Other long-term liabilities            346,214             141,171
       Total liabilities                  1,760,690           1,772,205
     Stockholders' equity                 1,859,273           2,380,339
                                         $3,619,963          $4,152,544
 
 
                                    Gateway
                Analysis of Consolidated Statement of Operations
                                 (in thousands)
                                  (unaudited)
 
                                        Three months ended March 31, 2001
 
                                     Excluding        Special    As Reported
                                  Special Charges     Charges
 
     Net sales                      $2,033,510            $--    $2,033,510
     Cost of goods sold              1,736,244         99,961 (1) 1,836,205
         Gross profit                  297,266        (99,961)      197,305
     Selling, general, and
      administrative expenses          383,691        389,569 (2)   773,260
         Operating loss                (86,425)      (489,530)     (575,955)
     Other, net                          5,160        (43,375)(3)   (38,215)
         Loss before income taxes
          and cumulative effect of
          change in accounting
          principle                    (81,265)      (532,905)     (614,170)
     Provision for income taxes        (26,127)      (108,990)     (135,117)
         Net loss before cumulative
          effect of change in
          accounting principle         (55,138)      (423,915)     (479,053)
     Cumulative effect of change
      in accounting principle, net     (23,851)            --       (23,851)
         Net loss                     $(78,989)     $(423,915)    $(502,904)
 
     (1) Represents a write down of the Company's consumer loan portfolio as
         it is prepared for disposition by sale.
 
     (2) Consists of $140 million related to the impairment of the goodwill and
         other assets acquired in the acquisition of NECX Direct, $83 million
         related to the write-down of domestic facilities and capital assets,
         $75 million for the closing of underperforming retail locations in the
         United States and Canada, $39 million related to productivity
         initiatives following the 12 percent reduction in force and the
         departure of senior executives, $38 million related to the
         restructuring of international operations and $15 million for other
         items.
 
     (3) Represents the write down of securities and long-term receivables
         associated with a strategic restructuring decision.
 
 
                                    Gateway
                       Three Months Ended March 31, 2001
                                Special Charges
                                 (in millions)
 
                                            Estimated
                                              Range               Actual
                                                      (unaudited)
     Productivity Initiatives                $35-60                 $39
     Facilities/Capital Assets               35-100                  83
     Operating Assets                         45-65                  75
     International Restructuring              30-36                  38
     Other                                     5-14                  15
     New Strategic Decisions                    N/A                 283 (1)
                                           $150-275                $533
 
     (1) Decisions made subsequent to March 3, 2001 consist primarily of the
         planned abandonment of the intellectual property and technology
         acquired in connection with the acquisition of NECX Direct and the
         decision to not only discontinue the purchase of lesser quality
         consumer finance receivables but also to sell the existing portfolio
         which is related primarily to same.
 
 SOURCE  Gateway Inc.