DATE: Tuesday, October 14, 1997             TAG: 9710140285

SECTION: BUSINESS                PAGE: D1   EDITION: FINAL 

SOURCE: BY AKWELI PARKER, STAFF WRITER 

                                            LENGTH:   66 lines

GATEWAY SALES ARE LAGGING DIRECT-SALES IMITATORS HAVE HURT EARNING AND PROMPTED SOME LAYOFFS.

Like a prize heiffer, North Sioux City, S.D.-based Gateway 2000 has given its country-boy CEO Ted Waitt lots to be proud of, like $5 billion in sales last year.

But recent events have more than a few people wondering: Is it time to put Ole Bessie on the block?

In recent months, the computer maker's sales have been trampled by production bottlenecks, overstocked inventories and competitors stampeding into Gateway's direct-selling niche.

Gateway, which uses a cow-spotted logo to harken back to the company's rural roots, has in a sense been a victim of its own success. Like rival Dell computer, Gateway sells primarily through mail-order catalogs and the Internet rather than retail stores. That cuts out the computer-store middleman and the associated mark-up.

Traditional computer peddlers from Compaq to IBM have taken notice and are trying on the direct model themselves. Even retail store CompUSA is getting into the act - it unveiled its own arsenal of private-label, direct-to-customer computers last month.

Gateway has been feeling the squeeze. ``They tend to be aimed at the high-end consumer,'' said Ashok Kumar, an analyst with Southcoast Capital in Austin, Texas.

That market, composed primarily of government and educational buyers, ``has become saturated,'' Kumar said.

All this competition plus a compendium of other problems have eaten away at Gateway earnings, disappointed Wall Street and cast dark clouds over the company's future. One significant setback was the company's July purchase of server maker Advanced Logic Research for $191 million - part of Gateway's power play to penetrate the more profitable corporate market.

The summer's UPS strike wreaked havoc on Gateway's factory floor, where getting parts in and shipping computers out - quickly - is the name of the game.

To turn things around, the cute and fuzzy Gateway turned to that coldest of cost-cutting tools - the pink slip. The company recently announced at least 300 jobs would be ``impacted'' worldwide.

Affected workers could accept a severance package or take an assignment somewhere else in the company, according to a statement issued by the company.

Infoworld called the move ``a dire indication'' for the company.

Gateway stock closed Monday at $35.50, up 50 cents.

Gateway declined to elaborate on how the layoffs will affect its Hampton factory and call center, which employs 1,300 workers, or its ``Gateway Country Store'' in Virginia Beach - a retail outlet that opened last Saturday in the old Luskins building on Virginia Beach Boulevard.

Gateway did say that it expected to end the year with about 12,000 people - the same complement as before the firings.

``Basically our internal forecasts were overly aggressive,'' said CEO Waitt in a statement warning of lower-than-expected third-quarter earnings.

The slowdown has prompted takeover rumors on the Street - not an entirely unfamiliar situation for Gateway.

When rival Compaq sidled up to acquire Gateway in the spring, Gateway broke off the engagement at the last minute.

Recent statements in the financial community that Gateway is now ready for such a match has fueled surges in its stock price despite official protests that Gateway isn't interested.

The lucrative, high-volume fourth quarter is still ahead, say Gateway officials and industry watchers are predicting a return to the good old days.

``We are taking the necessary actions to get our business back on track and we are looking forward to an exciting Q4,'' Waitt said.

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