Dispatch From the Front (Bore Port) February 10, 1999

<THE BORING PORTFOLIO>
Dispatch From the Front
Dale in New York

by Dale Wettlaufer ([email protected])

New York, N.Y. (Feb. 10,1999) -- Today's title sort of rips off Jim Cramer's line, but it's not as if he made up the phrase. Dale Wettlaufer here, reporting from the Goldman Sachs technology "conference" -- which they actually call a "Technology Investment Symposium."

The first item on the agenda for me today was attending Gateway's (NYSE: GTW) presentation. The officers of the newest addition to the Boring Portfolio reviewed 1998's performance -- basically going over what I wrote about in the Lunchtime News following the fourth quarter report.

In my haste to serve up the news bubbly hot, I forgot to mention the company's "Your:)Ware" financing program. This has been a great success for the firm, as it allows consumers to buy more computer when they decide to enter into what still is a considerable purchase for many families.

The company's Gateway Country Stores have been wildly successful, with a one year cash-on-cash return of 100% on each Country Store investment. Roughly 75% of consumers still purchase their computers through traditional bricks and mortar outlets, so we think Gateway's decision to keep pushing this retail strategy here and abroad is a good one.

For 1999, the company will continue to focus on blocking and tackling: Exercising more focused pricing decisions in the product line, closing more sales, executing on outbound marketing efforts to small- and mid-size corporate customers using the Country Stores as a sales base, and continuing to select investment alternatives that build the most value for the company and the customer. 1999 investments include:

• Repurchasing stock
• Expanding Gateway Country Stores
• Increasing the utility of the Gateway website and other offerings for customers
• Exploring potential acquisitions -- though there aren't tons of opportunities in this area

For fiscal year 1999, the company is targeting the following:

Revenues: $9.12 billion
Unit sales: 4.782 million
Average unit price: $1,907
Net income: $247 million

Founder and CEO Ted Waitt said Gateway doesn't see sub-$1,000 PCs as unattractive, but Gateway wants to provide a total package of services -- financing, Internet access, and continuing support. Most of Gateway's customers are buying their second (or more) PC, so this customer usually moves up in the features department. Decreases in CPU prices create a substitution effect -- where the extra dollars are going into better features like bigger monitors or more multimedia. I'll have more details in coming reports.

I also stopped in to the American Power Conversion (Nasdaq: APCC) presentation. We've got to scare up some new capital for the portfolio -- the economics of this company look very attractive. The rise of Internet commerce and voice over IP (Internet Protocol) are two trends that will drive APC's growth. These are both trends that demand 99.999% reliability for servers and other equipment.

According to one global Internet service provider, power problems cause by far the most downtime and lost value in their operations. With voice over IP (VoIP), you need dial tone quality. Cable plans will also demand upgrades in their power protection. Alex and I talked about power quality in American Power grids the other day. (Alex is THE MAN when it comes to electric utilities.) This issue, in light of increasing switches, spikes, and surges brought about by utilities deregulation, was emphasized in today's presentation. Decreasing power quality across power grids has always been a major selling point for APC.

I'll have more about the conference on Friday. Have a good evening.

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Stock  Change    Bid
BRKb  +10      2409.00
CSL     ---    44.75
CSCO  +2 5/8   98.56
GTW   +3       74.63

                   Day    Month   Year  History
        BORING   +1.52%  -1.58%  -3.20%  29.98%
        S&P:     +0.61%  -4.38%  -0.14% 104.18%
        NASDAQ:  -0.06%  -7.84%   5.33% 121.86%

    Rec'd   #  Security     In At       Now    Change
  6/26/96  225 Cisco Syst    23.96     98.56   311.44%
  8/13/96  200 Carlisle C    26.32     44.75    69.99%
 12/31/98    8 Berkshire   2244.00   2409.00     7.35%
   2/9/99  100 Gateway 20    72.38     74.63     3.11%


    Rec'd   #  Security     In At     Value    Change
  6/26/96  225 Cisco Syst  5389.99  22176.56 $16786.57
  8/13/96  200 Carlisle C  5264.99   8950.00  $3685.01
 12/31/98    8 Berkshire  17952.00  19272.00  $1320.00

   2/9/99  100 Gateway 20  7237.50   7462.50   $225.00


                             CASH   $7127.20
                            TOTAL  $64988.26