North Sioux City, S.D. - October 23, 1997 - Gateway 2000, Inc. (NYSE: GTW), a global leader in the direct marketing of PCs, today reported record shipments for its third quarter ended September 30, 1997. Gateway shipped 622,000 PCs in the quarter, an increase of 31% over the 474,000 PCs shipped in the third quarter of 1996. Revenues for the quarter totaled $1.5 billion, a 25% increase from the $1.2 billion recorded in the third quarter of 1996.

"We continue to gain market share but our growth in the quarter wasn't what we expected," said Ted Waitt, Gateway Chairman and CEO. "We took aggressive action on our inventory issues and remain focused on reducing overhead costs. We ended the quarter with accelerating demand which contributed to our backlog growing by nearly 40,000 units over last quarter."

As previously indicated, the company recorded several nonrecurring charges during the third quarter. These nonrecurring pretax charges of $113.8 million contributed to a net loss of $107.1 million for the quarter and a net loss per share of $0.68. These results compare to net income of $60.7 million and earnings per share of $0.39 for third quarter of 1996.

Of the nonrecurring charges, $60 million is for the write-off of in-process research and development arising in connection with the acquisitions of Advanced Logic Research (ALR) and certain assets of Amiga Technologies. Also included in the nonrecurring charges was a non-cash write-off of $45.2 million related to the abandonment of a capitalized software project and certain computer equipment. In addition, $8.6 million was recorded for severance of employees and the closing of a foreign office as part of the company's ongoing global reorganization.

Separate from these nonrecurring charges, operating results for the third quarter were adversely impacted by the effects of excess inventories. During the third quarter, there were significant declines in the market value of many of these inventory components. In order to promptly mitigate the impact of these excess inventories, the company sold product with profit margins below targeted levels. In addition, reserves were recorded against excess and obsolete inventories still on hand at the end of the third quarter. These actions caused gross margins in the third quarter to fall to approximately 13% of sales compared to the 18.6% realized for the year ago quarter. Inventory was reduced from $460 million at the end of the second quarter to $377 million at the end of the third quarter. Third quarter levels include $34 million of inventories of ALR, which was acquired in July 1997.

Selling, general and administrative (SGA) expenses increased to $219.3 million or 14.6% of sales, primarily as a result of including the operating expenses of ALR, the impact of the UPS strike on freight costs, and seasonal increases in personnel, marketing communications, telephone and credit card expenses. Without the inventory reserves and the one-time recurring charges, the company would have reported marginal income for the quarter.

"We took the steps we needed to take in the third quarter to position our company for future growth, and right now, we're seeing typical fourth quarter demand," said Waitt. "We feel Gateway is now in a position to take advantage of what is traditionally the strongest quarter of the year, and we feel that we are uniquely positioned for the long term."

THIRD QUARTER REVIEW

• For the Americas region, shipments increased 31% over last year. In Europe, shipments increased 4.6%, and in the Asia Pacific Region, shipments were up 41% over the third quarter of 1996. International sales represented 13.4% of total company sales.
• The average unit price of $2,419 was down 4.3% from third quarter 1996.
• Unit shipments of portable products were up 66.5% compared to the third quarter last year. Revenues from portables represented 12% of total revenues for the quarter.
• PCs with Intel Pentium^® II processors made up approximately 22% of total system shipments during the quarter.

BUSINESS UNIT REVIEW

• Gateway Direct and Gateway Country saw continued strong sales from the $1,499 system. Gateway's research shows that over 90% of these customers are first-time Gateway customers.
• Gateway Country opened 10 stores during the quarter. This brings the current total to 17. The company is on plan to have 30 stores opened by year-end.
• Gateway Major Accounts continued its commitment to corporate and institutional customers by introducing server and workstation products in September to accompany Gateway's E-Series of desktop computers designed for Enterprise customers. The NS-Series of servers are based on proven technologies from ALR and are designed to deliver high levels of value through reliability, fault-tolerance, scalability and performance at unprecedented prices. The most recent addition to Gateway's Enterprise product lineup is the E-5000 Series of Windows^® NT workstations which deliver exceptional performance through industry standard 3D video architecture combined with Intel Pentium^® II and AGP technologies.
• ALR introduced a new line of notebooks and desktops based on proven technology from Gateway.

THIRD QUARTER AWARDS

Leading industry publications in the U.S. market honored Gateway with a variety of awards and recognition. A Computerworld survey showed that Gateway led the industry in price, total cost of ownership and value. The report was based on a survey of 1,651 senior-level information technology (IT) buyers.

Some of the more prestigious awards were:

Destination^" Big Screen PC/TV systems

• Editor's Choice award from PC Gamer
• Reviewer's Choice award from Home PC
• A top award from Boot magazine

Desktops

• Four Best Buy awards from PC World for the G6-233 and G5-166M models
• Best Pentium^® Pro award from ENT for the Pentium Pro systems

Portables

• A Stellar Award from Windows
• Sources for the Gateway Solo^" 2300
• A Best Buy award from Laptop Buyers Guide for the Gateway Solo 2300
• A Reviewer's Choice from Government Computer News for Gateway Solo docking solutions

In the European market, industry publication awards included:

• PC Pro Labs Award for Notebook Reliability
• Le Choix De La Redaction award for the G6-266XL system from PC Direct
• Test Multimediacomputers - first place award - from Consumentengids for the P5-166MM
• PC Shopping Empfehlung for the G6-266XL system
• PC Mobil, Technik: "Sehr empfehlenswert" for the Gateway Solo 9100

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 the Destination Big Screen PC/TV/TV

The Destination line ranges from 166MHz Intel^® Pentium^® processors with MMX^" technology to 266MHz Pentium^® II processors. Users can purchase high value, standard configured systems at a price point starting as low as $2,904. The Destination Big Screen PC/TV/TV arrives with a minimum of 16MB of memory, Boston Acoustics^® MicroMedia three piece speaker set, 12X min/24X max CD-ROM drive, and a PCI 10/100 Mbps twisted pair Ethernet network card. The Destination line is bundled with Microsoft^® Office 97 Small Business Edition. An upgrade to Office 97 Professional Edition is available.

About Gateway

Gateway (NYSE: GTW), a Fortune 500 company founded in 1985, is a leading global 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 12,000 people worldwide. Gateway products and services consistently win top awards from leading industry publications. For the first nine months of 1997, revenues were $4.3 billion. For further information, visit Gateway at http:\\www.gateway.com.

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