North Sioux City, S.D., July 24, 1997 – Gateway 2000, Inc. (NYSE: GTW), a global leader in the direct marketing of PCs, today reported results for its second quarter ended June 30, 1997. Gateway 2000 shipped 554,000 PCs during the second quarter, a 31% increase over second quarter 1996 shipments of 424,000 units. Quarterly revenue was $1.39 billion, a 23% increase from the $1.14 billion of a year ago. Second quarter net income rose 10% to $56.5 million or $.36 per share (adjusted for a two-for-one stock split on June 17, 1997) from $51.4 million or $.33 per share in the second quarter of 1996. Revenues in overseas markets registered strong gains and the sales of the Gateway Solo^" line of portable PCs hit historic highs for the quarter.

Gateway 2000 Chairman and CEO Ted Waitt said, "As we indicated last month, we anticipated that the quarter would come in like a lamb and go out like a lion and we built inventories and infrastructure accordingly. Demand did not accelerate as fast as we thought until the end of the quarter, resulting in higher than desired inventory levels. We plan to work the inventory down to more favorable levels in the second half of the year and also efficiently utilize the infrastructure we have in place for the anticipated second half demand."

SECOND QUARTER BUSINESS REVIEW

• Unit shipments were up 31% over the second quarter of 1996.
• In Europe, shipments increased 47% in the second quarter over the second quarter of 1996, and shipments in the Asia Pacific Region were up 90% over the second quarter of 1996.
• International sales represented 18% of total company sales, equal to the level attained in the first quarter of 1997.
• Unit shipments of portable products continued to accelerate and were up 112% compared to the second quarter last year. Revenues from portables represented a historical high of 12.5% of total revenue in the quarter.
• Gross margins in the quarter were 18.7% up from 18.1% in the second quarter of 1996 and consistent with the levels of the first quarter of 1997.
• Average unit price ($2,515) was down 6.3% from the relatively high level of the second quarter of 1996 ($2,683), causing sales to grow at a rate slower than the growth in shipments. As a result, sales were up 23% over the second quarter of last year.
• Selling, general and administrative (SG&A) expenses for the quarter increased by 33% over the second quarter of 1996 on unit shipment growth of 31%. As a percentage of revenues, SG&A expenses increased to 13% from 11.9% last year and 12% in the first quarter.
• Investment in inventory increased $145 million over first quarter levels primarily due to purchases in anticipation of higher demand and strategic purchases of certain inventory components in connection with second half sales initiatives. As a result, inventory turns decreased to 11.9 compared to 18.7 turns last year.
• Gateway demonstrated its industry leadership in the adoption of Intel MMX^" with nearly 50% of orders for desktop and portable units for the quarter incorporating this technology. Launched May 7, Intel Pentium II^® grew to nearly 15% of desktop unit volume exiting the quarter.

BUSINESS OUTLOOK

"Our product line is showing strength in every category. In the US alone, we received more than 23 trade publication awards in the second quarter," said Waitt. "Seventeen of those went to our line of desktop products - arguably the industry’s most decorated line of Intel Pentium II^® systems."

Some of the more prestigious desktop awards were:

• two PC World World Class awards for the best home and best office desktop systems
• the only 5 out of 5 star rating from PC Computing for the G6-266 Intel Pentium II^® system
• a Stellar Award from Windows Sources for the G6-266 Intel Pentium II^® system
• the BYTE magazine BYTE Best Award for MMX^" for the P5-200 desktop

For portable products, second quarter awards included:

• two Editor’s Choice Awards from PC Magazine for the Solo 9100
• a Stellar Award from Windows Sources for the Solo 9100
• ‘Best Portable’ at Spring COMDEX for the Solo 9100 from BYTE magazine

The company also won the World Class Award for Best Service and Support from PC World. Fortune magazine praised the Solo 9100 as the "Rolls Royce of laptops".

Gateway’s customer brand loyalty continues to grow according to studies by two industry research firms. The IDC/LINK/ACNielson Homescan Tracker PC Survey released in May shows that Gateway has the highest brand loyalty for repeat buyers in the industry. This is the highest ranking of any major personal computer manufacturer from the approximately 40,000 consumers surveyed. In addition, Gateway tops all Wintel based systems in repurchase rates in the Computer Intelligence Consumer Technology Index. In addition, the May issue of Consumer Reports reported that, over a two week period, their researchers ‘reached the company’s technical support staff on every try’.

In the corporate market, Computerworld’s (July 14, 1997) Customer Satisfaction Survey of managers rated Gateway systems number one in "cost of ownership" for desktop systems. The company’s recently introduced Gateway E-series line of networked computers, which began shipping in this quarter, has been well received by corporate customers.

Gateway’s new subsidiary, Advanced Logic Research, Inc. (ALR), is the first company to break the 10,000 tpmC^" (online transactions per minute) benchmark for total processing in the high end servers market.

"All these acknowledgments reemphasize Gateway’s investments in products, services and support and our commitment to our customers," noted Waitt. "We are confident about our market position and our ability to leverage the investments we’ve put in place. We anticipate increasing our competitiveness in the corporate marketplace, which should accelerate our revenue growth in what we expect will be a very strong overall market in the second half of the year."

Special Note

The above statements include forward-looking statements based on current management expectations. Factors that could cause future results to differ from these expectations include the following: general economic conditions; growth in the personal computer industry; competitive factors and pricing pressures; component supply shortages; risks relating to acquired businesses; and inventory risks due to shifts in market demand. Additional factors are described in the company’s reports filed with the Securities and Exchange Commission.

About Gateway

Gateway (NYSE: GTW), a Fortune 500 company founded in 1985, is a leading global manufacturer and direct marketer of PC products. The company, headquartered in North Sioux City, South Dakota, has manufacturing facilities in the United States, Ireland and Malaysia and employs over 10,000 people worldwide. Gateway products and services consistently win top awards from leading industry publications. For further information, visit Gateway at http://www.gateway.com.

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