Gateway Should Go On The Block (GTW)

by: Douglas McIntyre posted on: May 12, 2006 | about stocks: GTW

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The stock in Gateway (NYSE:GTW) has fallen another 18% since it announced earnings about two weeks ago. This has brought the stock to 52-week low of $1.93. As a matter of fact, the stock has not been this low since Noah built the Ark.

The fact that a huge company like Dell (NASD:DELL) is also at a 52-week low and is in essentially the same business does not help. However, Dell is about fifteen times the size of Gateway when measured by revenue.

Gateway pushed the fact that its revenue rose 29% in Q1 06 to $1,077.8 billion and that PC unit sales rose 47% to 1.379 million. But this masked the difficult news that gross profit fell 2% to $78.7 million and the operating loss for the quarter almost doubled to $15.7 million. This was in spite of the fact that the company got $8.6 million in marketing dollars from Microsoft (NASD:MSFT) in the first quarter of 2006 that it did not get last year.

It may be time for the company's board to look for a buyer. With unit prices dropping for PCs and companies like Dell and Lenovo prepared to engage in cost cutting to keep share, Gateway simply does not have the revenue or balance sheet to stay in the game. And, the stock price is telling them that.

GTW 1-yr Chart

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at douglasamcintyre@gmail.com.

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