North Sioux City, S.D.-- January 22, 1998 -- Gateway 2000, Inc. (NYSE: GTW), a global leader in the direct marketing of PCs, today reported record results for the fourth quarter ended December 31, 1997.

Gateway shipped 850,000 PCs during the fourth quarter, a 38 % increase from fourth quarter 1996 shipments of 614,000. Quarterly revenue was $1.98 billion, a 28% increase from the $1.55 billion recorded a year ago. Fourth quarter net income rose to $93 million, or $.59 a share from $88 million or $.56 per share in the fourth quarter of 1996.

Unit shipments for the year ended December 31, 1997, increased 35% to 2,580,000 units compared to 1,909,000 units shipped in 1996. Sales in 1997 increased 25% to $6.29 billion compared to $5.04 billion in 1996. Net income for the year was $109.8 million, including a $95 million adverse after-tax impact of third quarter non-recurring items. Net income in 1996 was $250.7 million. In 1997 earnings per share were $.70, including a $0.61 adverse impact of third quarter non-recurring items, compared to earnings per share of $1.60 in 1996.

"Our record quarter was the result of executing well on the basics of our direct business model: forecasting, inventory management and cost controls," said Ted Waitt, Chairman and Chief Executive Officer of Gateway 2000. "We are pleased with the confidence our customers have in our products and service. Our employees’ hard work and dedication allowed us to quickly put the problems we experienced in 1997 behind us and finish the year on a positive note."

Fourth Quarter -- 1997 Business Review

• Average unit prices (AUPs) decreased 4% during the quarter to $2,326 compared to $2,430 in the third quarter of 1997. AUPs for the quarter were down 8% compared to the fourth quarter of 1996 AUPs of $2,529.

• Gross margins were 18% compared to the relatively high level of 19% in the fourth quarter of 1996, but somewhat better than expectations as Gateway’s direct business model quickly benefited from component cost reductions.

• Expense control programs put in place during the quarter reduced Selling, General & Administrative (SG&A) spending 1.7% below third quarter levels. This is the first sequential quarterly reduction in SG&A since the second quarter of 1996. For the quarter, SG&A was 10.9% of sales, down from 14.6% in the third quarter. The level this year is comparable to the 10.8% of sales achieved in the fourth quarter of 1996.

• Strong inventory management programs during the quarter reduced inventories by 34% from third quarter levels. Inventory turns for the quarter were 20.7. Aided by improved inventory management, cash flow was strong and cash equivalents and marketable securities more than doubled from the end of the third quarter to $632 million.

• On a year-to-date basis, excluding the impact of the non-recurring items recorded in the third quarter, the effective tax rate increased to 35.5% due to shifts in the geographic mix of earnings. The impact of increasing the year-to-date rate caused the effective rate in the fourth quarter to be 36.6%.

Business Outlook

"1998 promises to be an interesting year for Gateway and the industry. Our operational focus will be on demand forecasting, cost management, technology leverage and capital returns," said Waitt. " Our strategic focus will be on expanding our customer relationships with enhanced products and services sold via the Web, on the phone and in our stores to home consumers and business customers around the world."

1997 Highlights

Acquisitions

• Advanced Logic Research, Inc. (ALR). ALR is a pioneer in open, multiprocessor, Intel-based PC servers, with design, manufacturing and marketing support targeted at the client/server and high-end desktop markets.

• Certain assets of AMIGA Technologies, GmbH. AMIGA pioneered industry developments in multimedia, 32-bit multitasking and auto-configuration.

Gateway Country SM

• Exited the year with 37 stores in the United States.

Products

• Formally entered the server market with NS-Series systems designed for high degrees of fault tolerance, scalability and performance.

• Introduced the E-Series desktops for business. The systems are network-ready and based upon stable computing platforms.

• Moved into the technical workstation market with the E-5000 series of Windows® NT workstations.

Internet Sales

• Peaked in the fourth quarter at over $4 million a day.

NYSE

• Company shares began trading on the New York Stock Exchange (NYSE) on May 22, 1997, under the symbol "GTW".

Stock Split

• A two-for-one stock split of Gateway’s common stock occurred on June 16, 1997 at the stock price of $67.125.

Awards

• Destination systems
  • Most Valuable Product award from PC Computing
  • Editor’s Choice award from PC Gamer
  • Reviewer’s Choice award from Home PC
  • A top award from Boot magazine

• Desktops
  • Best Buy award from PC World for the G5-166SE, Home PC
  • Best Buy award from PC World for the G5-166, Budget Home PC
  • PC Computing A-List, G6-300XL
  • Best Place to Buy a Desktop PC, Computer Shopper
  • Best Value Desktop PC, Computer Shopper

• Portables
  • Editor’s Choice awards from PC Magazine for the SoloTM 2200 and 9100 systems
  • Best Buy award from PC World for the Solo 2300XL
  • Editor’s Choice Notebook of the Year award from PC Portables for the Solo 9100 notebook
  • Editor’s Pick award from Home Office Computing and Small Business Computing magazines for the Solo 9100
  • Stellar award from Windows Sources for the Solo 2300

• European Industry Publications
  • France: PC DIRECT, Le choix de la redaction, G6-266XL
  • Germany: PC Praxis, Editors Choice, G5-200M<
  • Holland: Consumentengids, Best in Test, Multimedia group test, P5-166M
  • Sweden: Portable Machine of the year, Solo 9100, Microdatorn
  • UK: Value Award, G6-266XL, PC Pro

• APAC Industry Publications
  • Top 5 High-end/Commercial Systems and Budget Systems, PC World Malaysia and Singapore
  • Top 10 Notebook PCs, PC World Malaysia and Singapore
  • Australian PC World 1997 Readers' Choice Awards - Best Business PC
  • Australian PC World 1997 Readers' Choice Awards - Best Home PC
  • Australian PC World 1997 Readers' Choice Awards - Best Notebook Solo

• Service and Support
  • Best Buy award from Computer Shopper readers for Best Service and Support
  • Gateway shared the World Class award for Best Hardware Support in PC World’s 5th Annual World Class Awards competition

  Annual Meeting

  The 1998 Annual Meeting of shareholders of Gateway 2000, Inc. will be held on May 21, 1998, at the Sioux City Convention Center, 801 Fourth Street, Sioux City, Iowa, at 9:00 AM local time.

  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 2000 (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 13,000 people worldwide. Gateway products and services consistently win top awards from leading industry publications. Revenue for the year 1997 was $6.3 billion. For further information, visit Gateway at http://www.gateway.com.

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