Gateway to Slash Nearly 5,000 Jobs

By Seth Hettena

Associated Press Writer

Tuesday, Aug. 28, 2001; 8:29 p.m. EDT

SAN DIEGO –– Struggling personal computer maker Gateway announced Tuesday it is laying off about 4,700 employees – 25 percent of its global workforce – as it tries to cope with an increasingly bleak market.

Gateway will immediately close all of its company-owned operations in Malaysia, Singapore, Japan, Australia and New Zealand. The company also will close customer service and sales centers in Hampton, Va.; Vermillion, S.D.; Salt Lake City; and Lake Forest. The announcement comes weeks after Gateway said it would close its European headquarters in Dublin, Ireland.

About 15 percent, or 2,200, of the company's 16,500 U.S. workers will lose their jobs under the plan, which the company said will help it save $300 million annually.

The company said it now expects to return to profitability in the fourth quarter. Previously, officials said they did not expect that to happen until fiscal 2002.

"As tough as these decisions were to make, we're doing all the right things to create a new company with a unique competitive edge and a healthy, profitable future," said Ted Waitt, Gateway's founder, chairman and chief executive. "We're planning to win by building a lean, nimble organization that is unified and focused on our customer base unlike any other time in our history."

Shares of Gateway rose 8.5 percent, or 73 cents, to finish at $9.33 in after-hours trading, adding to a 10-cent gain during the regular session on the New York Stock Exchange.

The layoffs follow an earlier wave of job cuts and a management shake-up which brought Waitt back to the company's helm after a brief retirement. Gateway cut about 3,000 jobs in January.

Before the cuts were announced, Gateway employed nearly 19,000 workers worldwide.

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.

Gateway said it will take a one-time charge of $475 million in the third quarter due to the restructuring.

In Salt Lake City, 660 workers will lose their jobs in two months when Gateway closes an assembly plant and sales and technical center it opened three years ago.

Workers at the plant were told of the layoffs Tuesday afternoon and then sent home for the day.

"Dude, we just got laid off," Cameron Gilmore told a friend by cell phone outside the plant.

"It isn't as bad as it sounds," said Greg Wright, who works in the company's bilingual sales department with Gilmore. "I'm a little worried because my wife's pregnant, and I have to think about benefits. But we have 60 days to find work."

Two other plants, in Hampton, Va., and North Sioux City, S.D., perform the same task as the Salt Lake City plant. Those plants will not close.

Gateway posted a loss of $20.8 million for the quarter ending June 30, compared with a profit of $118 million for the same period a year ago.

In an interview with The Associated Press, 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. The company said it would aggressively market home networks, computer consulting and financing packages for consumers, schools and small businesses.

The PC industry saw its first-ever drop in sales this year. Some analysts predict it won't recover until next year or early 2003.

-- PHO (owennos@bigfoot.com), August 29, 2001