- Earnings per share increase 38% to $0.35 per diluted share

- Unit Shipments increase 39% to 1,234,469

- Revenues increase 20% to $2.18 billion - Net income increases 40% to $113.2 million

- Non-PC income exceeds 15 percent of overall income

- Gateway.net ISP exceeds 600,000 subscribers

SAN DIEGO, October 20, 1999 - Fueled by continued momentum across all major segments of its core hardware business as well as non-system revenue that is now accelerating toward a pace of a billion dollars a year, Gateway (NYSE: GTW) today announced record third quarter earnings of $113.2 million, or $0.35 per split-adjusted diluted share, a 40 percent increase over year-ago levels.

Ted Waitt, Gateway's chairman and chief executive officer, said the third quarter demonstrates the strength of Gateway's innovative business model and its success in executing against that model in the marketplace.

"Our revenue stream is growing richer and more diverse quarter-by-quarter, giving us a very strong and unique position in the industry," Waitt said.

Jeff Weitzen, Gateway's president and chief operating officer, attributed Gateway's continued momentum to strong "back-to-school" sales for Gateway's consumer unit, record third-quarter performance in Asia-Pacific, strengthening performance in Europe and at Gateway Business.

"We're making steady progress on all fronts," Weitzen said. "For the first time in 10 quarters, each of our PC business segments saw unit growth of better than 30%, and our non-system revenue is now on pace to become a billion-dollar-a year business."

Of note was the continued rapid growth of Gateway.net, the Company's Internet service, which it launched in 1997. Gateway.net subscribers increased by 50% over the previous quarter to more than 600,000, making Gateway.net one of the fastest growing major ISPs in terms of organic growth.

Separately, Gateway and America Online today unveiled a strategic alliance to accelerate distribution of each company's products and services, create a host of new personalized Internet services and ramp up the "AOL Anywhere" vision of Internet access across multiple devices for consumers in the home and on the go.

Quarterly Sales

In the third quarter of 1999, Gateway shipped 1,234,469 units, a 39% increase from the third quarter of 1998. Sales increased 20% to $2.18 billion from $1.81 billion a year ago. Net income increased 40% to $113.2 million or $0.35 per diluted share, compared to $80.6 million or $0.25 per split-adjusted diluted share in the second quarter of 1998. On Sept. 7, 1999, Gateway split its stock two-for-one.

Strong growth in the U.S. for the quarter was driven by continuing strength in Gateway's consumer segment, driven by a strong back-to-school season. Compared with last year, Gateway Consumer unit sales grew 44% and revenue grew 27%.

Gateway's U.S. business segment continued to show strong momentum in the third quarter, making this the fourth quarter of sequential growth. Gateway Business unit sales grew by 31% year-over-year, and revenue grew by 10%. Unit sales to small and medium businesses, Gateway's target business market, grew by 43% during the quarter, and revenues grew by 26%.

Internationally, Gateway accelerated last quarter with year-over-year unit growth of 55% and revenue growth of 34%. Gateway's Asia business continued its rapid growth, while Europe continued to show signs of improvement. In Asia, Gateway posted robust year-over-year unit volume growth of 72% and revenue growth of 57%. Asia's strong showing was driven by healthy growth across all markets and channels, with Japan, once again, posting significant revenue and unit growth exceeding the industry pace.

Europe had a strong showing in the third quarter, with unit growth up 38% and revenue up 11% over the same period last year.

Driven by a changing consumer mix and government seasonality, worldwide average unit prices (AUP's) declined 13.7% from a year ago to $1,765 and declined 7% from the second quarter of 1999. More importantly, gross margins for the quarter remained at a record 22.0%, up from 20.8% last year and equal to second quarter 1999 margins. This is the seventh consecutive quarter of year-over-year margin improvement.

Gateway Country^® stores expanded to 238 locations worldwide. In the United States, there are now 189 locations, an increase of 21 stores during the third quarter. In Europe, Gateway has 22 locations, an increase of ten during the quarter. In Asia-Pacific, there are 27 locations, an increase of five during the third quarter. By year's end, Gateway plans to have about 275 stores worldwide, including more than 200 in the United States. Further aggressive expansion of Gateway Country is planned into next year.

Selling, General & Administrative (SG&A) Expenses

While Gateway continued to invest in long-term, strategic initiatives, the company remained ahead of plan in SG&A productivity for the quarter, and experienced a decrease in SG&A as a percentage of sales versus the second quarter. SG&A spending totaled $321.3 million, or 14.7% of sales, compared with $264.5 million or 14.6% of sales a year ago, and compared with $298.5 million or 15.6% of sales for the second quarter.

Operating Income

Operating income for the third quarter rose to $158.8 million, a 40% increase over last year. Other income increased 42% to $18.0 million compared to $12.7 million in the third quarter of last year, primarily due to increased interest income.

Net Income

Net income increased to $113.2 million, or 40% compared to last year's third quarter level of $80.6 million. Earnings per diluted share increased 40% to $0.35 from $0.25 per split-adjusted diluted share a year ago. The effective tax rate remains at 36%.

Cash and Marketable Securities

Gateway generated $168.7 million in operating cash for the quarter, ending the quarter with cash and marketable securities of $1.215 billion. Inventory turns increased again this quarter to 46.3 compared to 32.6 a year ago. The cash conversion cycle remains strong at negative 8.6 days, a 4.9-day improvement over last year and a 1.8-day improvement over the second quarter.

Business Outlook

Gateway is aggressively rolling out new products during the fourth quarter. Last week, the company introduced its latest all-in-one product, the Astro. Priced at $799, Astro is designed for ease of set-up and ease of use, and is targeted at first-time buyers and those who want a second or third home computer. Next month, Gateway will introduce the next-generation of its Profile flatscreen all-in-one PC.

"As we move into our traditionally strongest quarter of the year, we're poised to continue delivering better-than-industry growth rates and a more diverse and profitable revenue stream," said John Todd, senior vice president and chief financial officer. "With the momentum we're seeing now, we are well-positioned to take advantage of strong holiday demand."

Gateway's board of directors also has authorized the increase of the company's stock repurchase to $500 million, up from $250 million.

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 new or acquired businesses and joint ventures; 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 250 company founded in 1985, focuses on building lifelong relationships with consumers and businesses through complete technology personalization. Gateway ranked number one in U.S. consumer PC revenue in the second quarter of 19991 and was rated among the top ten best corporate reputations in America according to a survey conducted in the fall of 1999 by The Wall Street Journal and Harris Interactive, Inc. Gateway employees worldwide serve clients with services and built-to-order computers that consistently win top awards from leading industry publications. Gateway had total global revenue of $7.5 billion in 1998 and shipped 3.54 million systems. For more information, visit our Web site at www.gateway.com.

1. According to GartnerGroup/Dataquest US PC Quarterly statistics.

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