Heidy-hoo, Boring Port faithful. Brian Graney here filling in for Whitney Tilson with this week's portfolio report.
The first quarter earnings reporting season is fast upon us. Here's a breakdown of the Boring Port companies that are set to report their results this week and next:
Gateway (NYSE: GTW) -- April 13
Carlisle Cos. (NYSE: CSL) -- April 18
American Power Conversion (NYSE: APCC) -- April 20
First up on the list is Gateway, which will release its Q1 results after the close of trading on Thursday. The forecast is for earnings per share of $0.41, a 32% improvement from the same period a year ago. Management at the barnyard boxmaker caused a bit of a stir last month by hinting to sell-side analysts that revenues might fall short of the official quarterly target of $2.45 billion, even though the earnings performance for the period is expected to be unaffected. Expect a fair amount of commotion from the business press and others if the revenue miss turns out to be greater than expected or if Gateway reins in its revenue outlook somewhat for the second half.
While either one of these events could happen this week, the PC business currently appears to be enjoying an all-around period of health and tranquility. Judging from the bullish Q1 comments coming recently from networking infrastructure equipment companies like Alcatel and Newbridge, demand for the Internet continues to rise at a rapid pace. In turn, that demand ends up pulling the results of many business sectors up right along with it, including the PC biz. In other words, if the box makers stay true to their annual "first half pessimism, second half optimism" traits, 2000 could be another bang-up year for the industry, much like 1999 was.
That the Internet would drive unit shipments for the PC makers for some time to come was an important element of the Boring Port's original Gateway investment thesis last year. When the Internet is combined with the inherent competitive advantages of the direct model over the indirect model -- i.e., lower capital needs fueling higher returns on capital and efficient asset management producing better balance sheet aerodynamics -- the two forces provide the lift and thrust needed to propel Gateway's PC business.
The Internet is affecting Gateway's business in other ways as well, specifically as the company diversifies its revenue streams away from just box-building and more toward providing the goods for the post-PC age. Investors got further clarification of this strategy last week when Gateway and America Online (NYSE: AOL) provided details on their joint efforts for Internet appliances. Building off AOL's $800 million, two-year investment in Gateway announced last October, the two companies are rolling out a line of streamlined home networking appliances whose main purpose in life will be to deliver quick and easy Internet access by automatically launching the so-called "Instant AOL" service.
Consumers can expect to see an AOL Gateway countertop appliance, complete with a flat-panel LCD touchscreen display, and a simplified Internet desktop appliance with the friendly keyboard, mouse, and CRT setup by the end of this year. Those initial appliances will be followed in early 2001 by a wireless Web pad with a touchscreen and a wireless keyboard. Weighing in at less than three pounds and designed with around-the-house mobility in mind, the wireless Web pad offers a glimpse of what the future has in store for Gateway and the other boxmakers, as true wireless computing jumps from its current nascent form into a more developed reality.
Last August, fellow Borefolio-meister Dale Wettlaufer had this to say about how all of this may change Gateway's competitive environment in the years ahead:
"I think Nokia (NYSE: NOK) will be one of the most important direct competitors with Dell and Gateway five years down the road. The convergence of mobile computing and communications capabilities and the continued shrinking of form factors makes this competition inevitable, in my mind."
The roll-out of co-branded AOL Gateway Internet appliances -- all of which will be available for purchase at Gateway's growing base of Gateway Country retail stores, by the way -- is an early confirmation of this projection. Devices like the wireless Web pad bring us a step closer to one day realizing a world of pervasive wireless computing. When that day eventually arrives, rest assured that Gateway -- and the Boring Port, too -- will be there.
