Gateway cuts jobs and closes shops

Gateway began laying off 17 per cent of its 11,200-person staff and closing 76 of its retail stores on Monday.

The cuts are part of a previously announced plan to return the company to profitability this year.

Before that profitability can happen, however, Gateway will suffer financial pain. Gateway expects the layoffs and other restructuring to cost between $75m (£47m) and $80m, resulting in a loss of 62 to 66 cents per share, the company said in a statement, a loss larger than previously expected.

The PC maker began notifying the 1,900 employees affected on Monday morning. Gateway announced the job cuts and store closings later in the afternoon.

After these latest closings, 192 stores will be left, down from 268 earlier this month. There were 326 Gateway stores at the chain's peak. The company, which has already closed four stores this year, expects to complete the closings by 24 March.

The cuts come as Gateway is putting a new sales strategy in place - its third in three years. The new plan is designed to return the company to profitability by the fourth quarter of this year, despite the sluggish PC market. Worldwide PC unit shipments are expected to increase by only about seven per cent in 2003, according to IDC.

Gateway's latest plan centres on bolstering revenue by increasing PC sales; launching new consumer electronics; and lowering expenses. The company will use the job cuts and store closings to lower general and administrative expenses - the bulk of which are generally salaries and company operations, such as human resources. Simultaneously it will work to reduce manufacturing-related costs from components and things like product warranties.

Gateway expects to post a loss of between 62 cents and 66 cents per share for the first quarter, which ends 31 March.

Analysts polled by First Call had been expecting the company to post a loss of 34 cents per share for the quarter.

Gateway announced that revenue for its first quarter will come in at $820m to $850m.

Analysts had been expecting the company to post $955m in revenue, according to First Call.

Gateway's estimate would be down roughly 20 per cent from Gateway's fourth-quarter 2002 revenue of $1.06bn, reflecting the current status of the market, said chief financial officer Rod Sherwood during a conference call following the announcement.

"The softness in revenue reflects general economic softness, as well as uncertainty related to the war [in Iraq]," he said.

Gateway's last round of layoffs came a little over a year ago. The company eliminated 2,250 jobs and closed 19 stores during that January 2002 restructuring effort.

John G. Spooner writes for News.com