Achieves Sequential Revenue Growth

POWAY, Calif. (July 18, 2002) - Gateway, Inc. (NYSE: GTW) today reported second quarter 2002 revenue of $1 billion and a net loss attributable to common stockholders of $61 million, or $0.19 per share. This performance is consistent with guidance and represents sequential unit growth which is a reversal of the normal seasonal decline of seven percent. The company has not experienced sequential unit growth in the second quarter since 1997.

"Gateway is growing again. The introduction of our new notebook and desktop PC designs, combined with our value pricing strategy, enabled Gateway to make significant progress against our plan to return to sustained profitability," said Ted Waitt, Gateway chairman and CEO. "Our hard work is starting to pay off, and we're going to keep building on this momentum for the back-to-school buying season in the third quarter."

Q2 Performance Highlights

The company achieved several other important successes in the second quarter:

• Gateway reaffirmed its technology leadership with a new portable PC line that helped lift quarterly notebook unit sales to 20 percent of the sales mix. The company also introduced a sleek new lineup of desktop PCs during the quarter with industry-leading value and features. Gateway's redesigned PCs were recognized with honors including "Best Buy" awards for home and office computers in the July issue of PC World and an "Editors' Choice" award from CNet in April. In addition, Gateway's small business solutions were recognized with an "Editors' Choice" award in PC Magazine's April issue.

• The company's limited retail inventory program continued to drive incremental sales in Gateway stores. Sales of in-stock units accounted for seven percent of total units for the quarter.

• Gateway was named number one in repurchase brand loyalty for PCs in MetaFacts' Annual Technology User Profile survey (1).

Quarterly Sales

During the second quarter, Gateway sold 651,000 units, representing a slight increase sequentially and an 18 percent decrease year-over-year on a comparable basis. This unit increase has been driven largely by the company's value pricing strategy adopted in the first quarter of this year.

Unit sales to government and education customers were stronger than anticipated during the peak second quarter buying season. As expected, consumer unit sales declined sequentially, but at a rate lower than the company typically experiences in the second quarter.

The company's average unit price (AUP) increased slightly to $1,544 during the quarter, compared to $1,538 in the first quarter. This AUP increase can be attributed primarily to the company's increased mix of higher-priced products and upgrades.

Sales of non-PC products and services in the second quarter were 17 percent of revenue and 49 percent of gross margin dollars, with $89 million of revenue recorded at the point of sale and $85 million not at the point of sale. Gateway's average selling price, which is the sum of PC and non-PC products and services sold at the point of sale, was $1,414 for the quarter consistent with the previous quarter.

Pre-Tax Loss

Gateway's gross margin for the quarter was 14.3 percent, compared to 14.1 percent in the previous quarter, which excludes first quarter special charges. This increase resulted primarily from product mix changes and cost reductions.

Selling, general and administrative (SG&A) expenses decreased to $242 million, compared to $255 million for the previous quarter, which excludes first quarter special charges, as Gateway began to realize the benefits of the restructuring actions it recently implemented.

Other income, net declined to $5 million from $18 million in the previous quarter. In the second quarter this amount was negatively affected by net losses on investments, including the write down in value of certain strategic investments, as compared to the first quarter which was favorably affected by the net gain on investments and settlement of an acquisition liability.

The company had a pre-tax loss in the second quarter of $93 million.

Balance Sheet Highlights

Gateway maintained its strong liquidity position, exiting the second quarter with more than $1 billion in cash and marketable securities. The company's cash conversion cycle for the quarter declined to minus one day from minus six days in the previous quarter as a result of the seasonal mix shift to institutional sales at the end of the quarter, which was partially offset by an improvement in the number of days of inventory on hand.

Outlook

The company expects revenue for the third quarter to increase sequentially based in part on continued execution of its value pricing strategy. Gross margin percentages are expected to improve sequentially based on leverage associated with increased unit volume and continued cost improvements. Gateway also expects SG&A expenses to increase above the second quarter level in the third quarter based on variable SG&A associated with revenue increases while declining as a percentage of revenue. Accordingly, the company estimates the amount of the net loss per share to improve modestly from the $0.19 experienced this quarter.

The company expects market conditions to remain challenging for the remainder of the year, but is not changing its guidance of full-year 2002 revenue of $4.5 to $5.0 billion, a pre-tax loss (excluding special charges) of $200 to $250 million, and a year-end balance of more than $1 billion in cash and marketable securities.

"We said 2002 would be the year Gateway starts growing again and so far, we've made meaningful progress against that goal," said Waitt. "We've reclaimed the role of technology leader with industry-leading products, and we're executing more effectively than we have in a long time. From here, watch for Gateway to continue to grow our core PC business, expand our digital solutions business and further leverage our cost structure."

Conference Call

Gateway will host a conference call on Thursday, July 18 at 5:30 p.m. EDT. The call will be accessible via live audio webcast at www.gateway.com.

About Gateway

Gateway, Inc. (NYSE: GTW), a personal technology company, improves people's lives through a combination of the latest and best hardware, communication tools, applications, training and service, all offered with a custom financing package. The company takes a localized approach, utilizing its Web site, call centers and nationwide network of Gateway retail stores to build direct relationships with consumers, small and medium businesses and government and education institutions. In 2001, Gateway's products and services received more than 45 awards and accolades and the company was ranked number one in repurchase brand loyalty for PCs(2). For more information, visit Gateway's Web site at www.gateway.com.

(1,2) Source: MetaFacts Technology User Profile, 2001 Annual Edition. Based on a survey of 6,799 home PC owners.

Special Note This press release contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they do not materialize or prove incorrect, could cause Gateway's results to differ materially from those expressed or implied by such forward-looking statements. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including any projections of earnings, revenues, or other financial items; any statements of plans, strategies and objectives of management for future operations; any statements regarding proposed new products, services or developments; any statements regarding future economic conditions or performance; statements of belief and any statement of assumptions underlying any of the foregoing. The risks that contribute to the uncertain nature of these statements include, among others, competitive factors and pricing pressures, including the impact of aggressive pricing cuts by larger competitors; general conditions in the personal computing industry, including changes in overall demand and average selling prices, shifts among desktops to mobile computing products and information appliances and the impact of new microprocessors and operating software; the ability to transform the company to a technology solutions provider and restructure its operations and cost structure; component supply shortages; short product cycles; the ability to access new technology; infrastructure requirements; risks of international business; foreign currency fluctuations; ability to grow in e-commerce; risks of minority equity investments; risks relating to new or acquired businesses, joint ventures and strategic alliances; risks related to financing customer orders; changes in accounting rules, the impact of litigation and government regulation generally; inventory risks due to shifts in market demand; changes in product, customer or geographic sales mix; the impact of employee reductions and management changes and additions; and general economic conditions, and other risks described from time to time in Gateway's Securities and Exchange Commission periodic reports and filings. The Company assumes no obligation to update these forward-looking statements to reflect events that occur or circumstances that exist after the date on which they were made.

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