Gateway Target of Criminal Investigation

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Computer maker Gateway Wednesday said the U.S. Attorney’s Office in San Diego has opened a criminal investigation focused on the company’s accounting practices.

The probe is directly related to a Securities and Exchange Commission (SEC) inquiry into Gateway’s bundled AOL Internet services in 2000 and the first quarter of 2001.

Company spokesman Bob Sherbin told internetnews.com that the company is fully cooperating with the Attorney’s Office but did not say when the investigation would take place or how long it would last.

“We disclosed it as part of today’s 10Q filing,” he said. “So far the investigation by the U.S. Attorney’s Office is in a preliminary stage.

Bundling AOL has had a devastating impact for Gateway. The company recently said that it would restate its reported income for 1999, 2000 and 2001 based on the AOL charges. Gateway is shaving off income of $8 million in 1999, $337 million in 2000 and $131 million in the first quarter of 2001.

Gateway reiterated to investors its previous guidance for the second quarter of revenue of $798 million and earnings per share (EPS) of 27 cents. It also confirmed that it is comfortable with the analysts’ consensus of 3Q revenue of $893 million and EPS of ($0.19), and fourth quarter revenue of $964 million and EPS of 9 cents.

Sherbin said the investigation would not have an impact on the company’s guidance.

The Poway, Calif.-based computer maker has been furiously streamlining in the last several months, closing retail stores, laying off staff and making other adjustments in an attempt to save itself from extinction. Gateway said its cost-reduction programs are on track to achieve $200 million in annualized cost savings by the fourth quarter of 2003 and $200 million in savings in 2003.

The closing of Gateway Country stores is paving the way for five new pilot retail stores in the third quarter and the concern will remodel existing stores to accommodate its branded integrator strategy this fall.