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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2003

OR

For the transition period from                      to                      

Commission file number 0-22784

GATEWAY, INC.

14303 Gateway Place, Poway, CA 92064

Telephone number: (858) 848-3401

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:    None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes x    No ¨.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes x    No ¨

The aggregate market value of the voting stock held by non-affiliates of the registrant on June 30, 2003, the last business day of the registrant’s most recently completed second fiscal quarter (based on the last sale price on the New York Stock Exchange as of such date) was approximately $804,777,000.

As of February 23, 2004 there were 324,458,553 shares of Common Stock outstanding and no shares of Class A Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Gateway’s definitive proxy statement relating to our 2004 annual meeting of stockholders are incorporated by reference in Part III of this Form 10-K.

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GATEWAY, INC.

FORM 10-K

For the Fiscal Year Ended December 31, 2003

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Forward-Looking Statements—This Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7, contains forward-looking statements based on Gateway’s current expectations that are subject to various risks and uncertainties, as well as assumptions that, if they do not materialize or prove incorrect, could cause our future 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 are or could be deemed forward-looking statements, including without limitation any statements relating to future results of operations, plans or strategies or relating to future economic or industry conditions. Factors that might cause such differences include, but are not limited to, those discussed in the subsection entitled “Business—Factors That May Affect Gateway’s Business and Future Results” under Part I, page 11 or that are otherwise described from time to time in our reports filed with the Securities and Exchange Commission after this Annual Report. Gateway assumes no obligation to update any forward-looking statements to reflect events that occur or circumstances that may arise after the date as of which they are made.

PART I

Item 1.    Business

General

As a branded integrator of personalized technology solutions, Gateway, Inc. (“Gateway” or “we”) provides a broad range of personal computers (“PCs”), consumer electronics products, enterprise systems, communication tools, applications, training and related services. Our strategy is to deliver value to customers by offering a wide range of plasma, LCD and rear projection TVs, digital cameras, other consumer electronics products, and enterprise systems, which integrate with and complement our award-winning line of PCs and employ the latest technology at competitive prices, along with a full complement of related products and services.

We are one of the leading suppliers of PCs to the U.S. market, with an estimated market share of approximately 3.8% in 2003 based on dollar sales, according to preliminary data from International Data Corporation. We are also a significant supplier of PCs to the U.S. professional market, consisting of large corporate, small and medium businesses and government and educational institutions. We sell our products nationally through a number of channels, including our website at www.gateway.com, our telephone call centers (1-800-GATEWAY), our retail stores where customers can experience our products with assistance from our trained sales force and through a limited number of third-party channels. We believe these multiple sales channel options, our diversified product and service offerings, and our superior customer relations and support provide a unique customer experience that differentiates us from our competitors.

Our strategy is to profitably grow our PC business, to diversify our revenue and increase our gross margin with consumer electronics products and related services, and to reduce our cost structure. Our goal is to make Gateway the place where customers can rely upon effective advice to purchase PC and consumer electronics products and services that provide integrated personalized technology solutions. We plan to continue to deliver the latest technology solutions and to develop innovative new products and services. We also intend to continue to maintain a strong liquidity position to maintain our financial flexibility. We exited 2003 with $1.1 billion in cash and marketable securities.

In 2003, we continued our efforts to reduce fixed costs, strengthen our balance sheet and implement our strategy to evolve from a traditional manufacturer of PCs to a leading branded integrator of personalized technology solutions, substantially expanding our range of consumer electronics products. We also implemented a product fulfillment model that we believe provides us with a competitive system to source, build and deliver products to our consumer and professional customers. In the area of products and services, we continued our strategy of leveraging our existing retail presence and our brand position through new products that include

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plasma, LCD and rear projection TVs, digital cameras and other consumer electronics products. During 2003 we added 118 new products and services in 22 new categories. We intend to expand our consumer electronics and other non-PC (“CE/Non-PC”) business in 2004 and work to further reduce our costs.

On January 30, 2004, we announced our agreement to acquire privately-held eMachines, Inc. (“eMachines”), a leading PC company, for 50 million shares of Gateway common stock and approximately $30 million in cash. Under the agreement, Wayne Inouye, eMachines’ chief executive officer, will become the new chief executive officer of Gateway and a member of Gateway’s Board of Directors. Theodore W. Waitt, Gateway’s founder, will remain Chairman of the Board and Roderick M. Sherwood III will remain Gateway’s executive vice president and chief financial officer. We anticipate that upon the closing of the transaction, we will focus on rapid finalization and execution of combined cost savings plans, channel and product expansion initiatives and other growth strategies.

During 2003, Gateway continued to experience a decline in demand for our PC products and incurred net losses that were partially offset by increased demand for our higher margin consumer electronics products. We expect that the acquisition of eMachines will create a combined company that will be a strong player in the U.S. PC market across multiple channels of distribution and across both the low-end and higher-end PC markets, with sales in key international markets, particularly in the United Kingdom and Japan. We are also evaluating re-entry into other international markets.

The eMachines transaction is subject to customary closing conditions, including expiration of a regulatory waiting period, and is expected to close by mid-March 2004. For a discussion of certain risks associated with this transaction, see “Acquisition of eMachines” under “Business—Factors That May Affect Gateway’s Business and Future Results” on page 11 of this Annual Report.

The information presented in this Annual Report on Form 10-K does not give effect to the eMachines’ acquisition.

Available Information

You can access information about Gateway and our products and services at www.gateway.com. You can also access our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to these reports, free of charge, on our website at www.gateway.com, after we file the reports with or furnish them to the Securities and Exchange Commission. Gateway will also provide these reports in printed form to any stockholder who requests them from Gateway. The information on our website is not incorporated into this annual report. Gateway was incorporated as “Gateway 2000 Inc.” in 1986 and we changed our name to “Gateway, Inc.” in 1999.

Business Segments

We operated our business in two segments in 2003: Consumer and Professional. For further information on our operating segments see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 12 of the Notes to the Consolidated Financial Statements.

For a discussion of certain risks associated with Gateway’s operations, see “Business—Factors That May Affect Gateway’s Business and Future Results” beginning on page 11 of this Annual Report.

Consumer Sales

We market our PC and consumer electronics products and solutions directly to customers, primarily by placing advertisements on or through television, newspapers, magazines, radio, the Internet, the www.gateway.com website, local promotions and trade show appearances. We believe our creative marketing, including use of our trademarked Black-and-White Spot Design on product packaging, helps to generate significant brand awareness and a loyal customer base.

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We sell our products and technology solutions directly to consumers primarily through four complementary distribution channels—phone sales, web sales, our nationwide network of Gateway retail stores, and a limited number of third-party channels. Gateway’s stores allow customers to see and evaluate products and obtain information from highly trained sales representatives. We believe that a significant number of our consumer customers take advantage of at least two of these channels before making their purchases.

During 2003, we closed 82 retail locations and exited the year with 190 Gateway retail stores located in the United States. These stores are generally open seven days a week and our sales call centers are open up to eighteen hours a day, seven days a week.

We believe a multi-channel approach, our low-cost sourcing model, and our well-known Gateway brand, should be competitive strengths for us as we continue to expand our product offerings in the PC and consumer electronics markets.

Professional Sales

During 2003, our professional sales and marketing activities focused on our core market segments: large corporate, small and medium business, education and government. To complement our professional sales efforts, Gateway also retains approximately 206 third-party network solutions providers who work with our professional sales force to deliver localized consultation and integration services to business, education and government customers in essentially all the top markets across the United States.

In addition to our retail store and telephone sales channels, Gateway has enhanced customer sales options with Internet-based tools. We offer business, education and government clients customized websites, called eSource sites, to facilitate their order and order management requirements. Additionally, we have developed the Gateway eMarketplace to facilitate both online purchases and sales of a wide range of technology and products that help businesses run.

Gateway’s Custom Integration Solutions (“CIS”) program is designed to accommodate the needs of large professional customers who require specialized hardware, software and services that are not available as a part of our standard offerings. Our CIS group accelerates technology deployment for clients through integration of unique hardware and software and development of customized services to meet professional customer individual requirements.

PCs and Servers

We offer our customers a broad line of Gateway-branded PCs and servers. We market our PCs with recommended configurations, but our large professional customers can also custom-configure some of our PCs with a choice of microprocessor clock speeds, memory, storage capacities, as well as other options. The following are the key products within this class:

Desktop PCs.    Gateway offers a series of desktop PC products, developed to serve targeted customer segments. We offer a range of standard model series—the 310, 510, 710 and Gaming PC Series for consumers and the Gateway E-Series for professional customers, with each series having a number of recommended configurations with increasing levels of technology and features. In addition, Gateway provides an all-in-one desktop, the Profile Series, an all-in-one PC, TV, DVD, PVR, MP3 player, FM tuner and stereo system, the 610 Media Center and the FMC-901 Family Room Media Center PC. Large professional customers can purchase a configuration of our E-Series that they customize for their particular needs. Desktops represented over 48% of net sales in 2003.

Mobile PCs.    Gateway offers a series of mobile PC products to provide portable computing capabilities for both consumer and professional customers who operate in both a mobile and networked environment. The systems are available with docking stations and various multimedia applications. As with desktops, portables

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have a range of standard model series—the 200, M305, M350, M405, 450, M505 and M675 Series, with each series having a number of recommended configurations. Portables are designed to range from the very light 200 series products that can be undocked from the base unit and weigh about 2 pounds to the M675 Series, a high-end, feature-laden desktop replacement. Mobile PCs are a growing percentage of Gateway’s PC business, representing about 22% of net sales in 2003.

Tablet PC.    Weighing in at less than three pounds, our Tablet PC, which is a special product included within our mobile PC product line, couples the flexibility and ease of a simple notepad with the full computing power of a notebook PC. With its external mobile keyboard and docking station and stand, the Tablet PC is like a traditional notebook PC. However, when in tablet mode, our customers can write on it using a digitizer pen, providing an innovative, convenient computing experience. In addition, we offer a hybrid mobile-tablet PC, the Gateway M275 Series, which is a feature-packed notebook that easily transforms into a Tablet PC.

Servers, Storage and Networking.    Gateway also offers Gateway-branded servers and storage and networking products and related services for professional customers. Every Gateway server has an adaptable design and can be custom built with a variety of options to fit the customer’s needs. Gateway servers can be ordered in tower based or rack-mounted configurations, with Windows^® operating software. Servers, storage and networking products and related services represented approximately 2% of net sales in 2003.

Consumer Electronics and Other Non-PC Products and Services

A key element of our growth strategy is to expand CE/non-PC products and services, particularly those under the Gateway brand. CE/non-PC products were previously referred to as “digital technology solutions,” and “beyond-the-box” offerings, and include all products and services other than the PC, such as peripherals, software, accessories, extended warranty services, training, internet services, plasma, LCD, and rear projection TVs, digital cameras, other consumer electronics products, enterprise systems and financing. Since May 2003, we added 118 new products and services in 22 new categories, exceeding our internal targets. CE/non-PC products and services represented approximately 28% of net sales in 2003.

Consumer Electronics Products.    During 2002, we began to offer a selected inventory of CE/non-PC products, many of which are branded under the Gateway name, in our Gateway retail stores as well as on our website and our call centers. We expanded our Gateway TV product line to include 12 models of plasma, LCD, and rear projection TVs. Initially launched in the fourth quarter of 2002, Gateway’s TV product line delivers a high picture quality television to consumers at attractive price points. Our plasma TV line is available in 42, 46 or 50-inch wide screen sizes, each providing an attractive ultra-thin design. Similarly, we introduced Gateway’s digital camera product line in the third quarter of 2003, which was quickly expanded to include 6 models in response to product demand. During 2003 we also expanded our line of home entertainment offerings to include a high-end surround sound system. We also offer a variety of home networking solutions. We plan to introduce additional CE/non-PC products in 2004.

Peripherals, Software and Other PC-Related Products.    We market printers, scanners, mobile PC accessories, monitors, CD and DVD burners, storage devices, surge protectors and other PC accessories that are manufactured by leading companies in their respective markets. We offer an increasing number of these products under the Gateway brand. We also market a broad range of third-party software offerings, from entertainment and productivity applications for the consumer market to vertical applications for various segments of the commercial and institutional markets. Peripherals, software and other PC-related products are sold in all four of our sales channels, including our website at www.gateway.com, where more than 7,000 products are available.

Services and Support

We provide customers with a number of additional offerings beyond Gateway’s standard warranty, service and support packages included with a typical product purchase.

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Consumer Services Support.    In our consumer segment, our value added fee-based service and support offerings consist of extended service plans, including extended warranty and accidental damage programs, fulfillment of replacement parts, installation and integration services and technical support services.

Professional Services Support.    In our professional segment, our value added service and support offerings are designed to satisfy the needs of customers throughout the technology lifecycle. For this segment, we offer:

Customer Relationship Management.    Gateway’s Customer Relationship Management (“CRM”) system is designed to achieve high consumer and professional customer satisfaction levels and assists our sales force with respect to repeat and referral business and the delivery of quality service and support. With the increased use of CRM tools and processes, we expect to be able to provide more personalized products and services.

Multi-Channel Delivery.    We deliver customer service and support at the customer’s location, at Gateway retail stores, at third-party locations and via telephone and the web. Gateway believes the availability of services through multiple channels benefits customers by providing them with a range of service options. Phone support to consumers is provided by a variety of third-party call center partners. Our professional segment is supported internally.

Communications.    We offer a variety of Internet access service options and networking products and services to our consumer and professional customers. Our offerings include broadband Internet access service provided by a number of leading cable broadband providers and wireless communications offerings, as well as narrowband Internet access service and high-definition video services provided by third-party service providers.

Financing Programs.    In 2003, we partnered with a number of third-party consumer financing institutions who provided financing of approximately 26% of our consumer net sales on a non-recourse basis to Gateway.

Training.    Through our nationwide network of Gateway retail stores, as of February 1, 2004 we had approximately 1,968 classroom seats throughout the U.S., offering training on general PC usage, popular third-party software, Internet usage, digital devices, and networking services to our consumer and professional customers. We also offer a unique, Gateway-branded multi-media training solution that combines instructor-led, CD-ROM and Internet-based training classes that enhance customer convenience and accessibility.

Cooperative Research and Product Development

The PC and consumer electronics industries are characterized by rapid technological advances. Our ability to compete successfully is heavily dependent upon our ability to ensure a continuing and timely flow of competitive products and technology to the marketplace. Our focus is primarily on coordinating and leveraging the research and development activities of a number of key technology partners and product or component providers. Our internal product development efforts are focused on designing and developing competitively priced PC systems and CE/non-PC products that adhere to industry standards and incorporate the technologies

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and features that we believe are most desired by our customers. In 2003 we expanded our presence in Taiwan by establishing a Taiwan branch office to help us facilitate communications with key international suppliers and to promote research and development activities. Our research and development expenditures in each of the last three years were less than 1% of net sales.

We rely on close and cooperative relationships with a wide range of suppliers and other advanced technology developers for research, development and engineering and to evaluate the latest developments in PC and consumer electronics technologies. Working with these companies, our engineers manage quality, integrate technologies and design product and system architecture. We believe that these relationships, together with market information obtained from our direct customer relationships, allow us to rapidly introduce and deliver appealing new products, software and services to the marketplace.

Manufacturing

We have designed our manufacturing process to provide a simplified line of PC products with standardized recommended configurations. We use third-party suppliers to manufacture Gateway-branded mobile PCs, most of our desktop PCs and our CE/non-PC products. All custom-configured desktop PCs are built at our own facility for our large professional customers, including the final assembly of our servers. Our production and quality assurance teams help ensure that all our products meet our quality specifications and applicable regulatory requirements.

Our desktop PC and server manufacturing operation for custom-configured desktop PCs in North Sioux City, South Dakota has been assessed and certified as meeting the requirements of the International Organization for Standardization (“ISO”) 9001-2000. The ISO 9001-2000 certification recognizes Gateway’s compliance with international standards for quality assurance. In an effort to maintain manufacturing excellence, we continue to identify and analyze those risks that impact our manufacturing ability. We utilize risk transfer methods and continuity planning to maintain our manufacturing capabilities. In addition, our major third-party desktop and mobile PC suppliers are ISO 9001-2000 certified.

Patents, Trademarks and Licenses

We hold over 300 U.S. and international patents and have a significant number of pending U.S. and international patent applications. Our portfolio includes a broad range of patents in the areas of computer related and information processing technologies, consumer electronics and manufacturing processes. A majority of the patents in our portfolio are recently issued patents. In addition to our own engineering resources, we work closely with consumer electronics and PC original design manufacturers, key component suppliers and other technology developers to develop products based on the latest technologies. Patents are sought for inventions that contribute to Gateway’s business and technology strategy. We have obtained patent licenses for certain technologies where such licenses are necessary or advantageous, some of which require royalty payments. In addition, we have entered into patent licenses and cross-licenses to obtain access to other technology, and we license our own patents to others in return for royalty payments. Trade secrets developed by us are protected through formal procedures that include employee agreements and confidentiality agreements with other entities.

We own and use a number of trademarks on or in connection with our products and services, including Gateway and our Black-and-White Spot Design, among others. Many of these trademarks are registered in the United States and other countries, and numerous trademark applications are pending in the United States and other countries. We believe these trademarks have strong brand name recognition in the United States marketplace and in many countries throughout the world.

We do not generally own the software used on our PCs and have entered into software licensing arrangements with a number of software developers, including Microsoft Corporation. For example, Gateway has licenses with Microsoft Corporation for Windows XP, Windows 2000, and Microsoft Office software products,

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among others. Software and materials developed by Gateway are protected by copyright in the United States and internationally.

Competition

The PC industry is characterized by aggressive pricing by several large branded and numerous additional branded and generic competitors, short product life cycles, and price sensitivity by customers. The level of pricing aggressiveness is accelerating, particularly in the low-priced end of the market. We also compete with consumer electronics companies and retailers with respect to our PCs and CE/non-PC products. Many of our competitors are larger and better funded than we are. Despite sales declines in 2003, we believe our direct sales model and sales offering of personalized technology solutions will be competitive advantages.

We believe we compete primarily on the basis of customer intimacy, value, technology, product offerings with new performance features, operational efficiency, quality, reliability, brand, multiple channel distribution, customer service and support, and by maintaining supplier relationships to enable us to bring products quickly to market.

In recent years, we and many of our competitors have regularly lowered prices. We expect these competitive pressures to continue in 2004 and that average sales prices for PCs and digital TVs will continue to decline. If we continue to reduce prices in response to such competition, without corresponding cost savings and product diversification, we may be unable to maintain or improve gross margins.

International Operations

During the third quarter of 2001, we discontinued our company-owned international operations outside of North America. During 2003, Gateway continued to sell products in Canada and Mexico through third-party retailers and resellers, in addition to sales and operations in the United States. In addition, we expanded our presence in Taiwan by establishing a Taiwan branch office in 2003 to help us facilitate communication with key international suppliers and to promote research and development and quality control activities. Although we have exited substantially all of our company-owned international operations, we are still in the process of finalizing the termination of a number of leases and fulfilling warranty obligations. If we complete the planned acquisition of eMachines, we will add sales primarily in the United Kingdom and Japan. We are also evaluating additional international markets.

Environment

Certain of our operations involve the use of substances regulated under various federal, state and international laws governing the environment, including those governing the discharge of pollutants into the air and water, the management and disposal of hazardous substances and wastes and the cleanup of contaminated sites. Certain of our products are subject to various federal, state and international laws governing chemical substances in products, including those regulating the manufacture and distribution of chemical substances and those restricting the presence of certain substances in electronics products. The liability for environmental remediation and other environmental costs is accrued when it is considered probable and the costs can be reasonably estimated. Environmental costs are presently not material to our operations or financial position. In addition, Gateway currently has an incentive program to encourage our PC customers to recycle or donate their old PC and monitor, regardless of brand or condition.

Employees

As of December 31, 2003, we had approximately 7,400 employees in the United States and 7 employees located in Taiwan. During 2003, we believe our employee relations were generally good.

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Backlog

The backlog of unfilled orders was approximately $80 million at year-end 2003 and approximately $58 million at year-end 2002. We do not believe that backlog is a meaningful indicator of sales that can be expected for any period, and there can be no assurance that the backlog at any point in time will translate into sales in any subsequent period, particularly in light of our policy of allowing customers to cancel or reschedule orders under certain circumstances.

Seasonality

Gateway’s PC business has limited seasonality with stronger consumer sales in the second half of the year and stronger professional sales in the second and third quarters. Consumer electronics products sales tend to increase in the fourth quarter, although we have a limited history selling these products. Due to the increasing percentage of CE/Non-PC revenues to our overall revenues, we expect increased fourth quarter seasonality in the future.

Corporate Governance

The Gateway Board of Directors is elected by stockholders and is responsible for directing the management of business and affairs of Gateway. The Chief Executive Officer and senior management run Gateway’s day-to-day business operations. During 2002, the Board adopted formal Corporate Governance Guidelines. The Corporate Governance Guidelines are available for reading at www.gateway.com and will be provided in printed form to any stockholder who requests a copy from Gateway. The guidelines provide that the principal responsibilities of the Board, in addition to its general oversight responsibilities, include the: (a) selection, evaluation and compensation of the Chief Executive Officer and oversight of the selection and compensation of Gateway’s senior executive management; (b) oversight of succession plans for the CEO and key executive positions; (c) review and evaluation and, as appropriate, approval of Gateway’s financial and business performance, operations, key objectives, strategies, plans and actions; and (d) review of the processes in place to ensure the integrity of Gateway’s financial, accounting and control systems and the accounting principles and practices used to prepare the financial statements.

The current Board consists of six directors, five of whom are independent directors under the rules of the New York Stock Exchange and the sixth director is our Chairman and Chief Executive Officer, Theodore W. Waitt. Following the completion of the eMachines acquisition, Wayne Inouye, eMachines Chief Executive Officer will become Gateway’s Chief Executive Officer and join the Board, while Mr. Waitt will remain Chairman of the Board. The Board meets in regularly scheduled meetings as well as in special meetings. Beginning in 2002, all independent directors meet without management present during each regularly scheduled Board meeting, with a designated independent Board member chairing that segment of the meeting.

The Board has delegated a number of responsibilities to various committees of the Board. At the present time, the Board Committees are the Audit, Compensation, and Corporate Governance and Nominating Committees. The members of each committee are appointed by the Board. Currently, each committee consists entirely of independent directors. Each committee meets on a regularly scheduled basis and operates under a written charter approved by the Board, all of which are available for reading in their entirety at www.gateway.com and will be provided in printed form to any stockholder who requests a copy from Gateway.

The Audit Committee represents the Board in its general oversight of Gateway’s financial reporting, internal controls and audit functions. The Audit Committee is also directly responsible for the appointment, compensation and oversight of the work of Gateway’s independent accountants. During 2003, PricewaterhouseCoopers LLP (“PwC”) was appointed as independent accountants of Gateway and the Audit Committee has appointed PwC as independent accountants for 2004, subject to stockholder approval. The Audit Committee also approves any non-audit services by the independent accountants. The Audit Committee meets regularly in separate sessions with senior management, internal audit and Gateway’s independent accountants.

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The Compensation Committee reviews and approves salaries, bonuses and other compensation for our Chief Executive Officer and other senior executive management. In addition, the Compensation Committee administers Gateway’s 2000 Equity Incentive Plan, including reviewing and granting stock options and equity awards to officers and other employees.

The Corporate Governance and Nominating Committee reviews and reports to the Board concerning corporate governance matters, and conducts an annual evaluation of the performance of the Board and the Corporate Governance Guidelines. In addition, the Corporate Governance and Nominating Committee recommends to the Board the size and composition of the Board and establishes procedures for consideration of candidates for the Board and recommends candidates for election to the Board.

Since early 2001, we have implemented a number of other corporate governance improvements to address both proposed and actual legal requirements, as well as best practices:

We continue to evaluate our corporate governance practices in light of best practices and changing regulatory requirements and anticipate additional changes as necessary or appropriate. In addition, an executed certification from our Chief Executive Officer stating that he is not aware of any violation by Gateway of the New York Stock Exchange’s corporate governance rules will be timely filed with the New York Stock Exchange with respect to the 2003 fiscal year.

Factors That May Affect Gateway’s Business and Future Results

In addition to other information contained in this Annual Report, the following factors could affect our future business, results of operations, cash flows or financial position, and could cause future results to differ materially from those expressed in any of the forward-looking statements contained in this Annual Report.

Acquisition of eMachines.    There are significant risks and uncertainties associated with Gateway’s proposed acquisition of eMachines. For example, the acquisition, which remains subject to customary closing conditions, including expiration of a regulatory waiting period, may not be consummated, or it may not be completed by the end of the first quarter as anticipated. In addition, Gateway may fail to realize the growth opportunities and cost savings anticipated to be derived from the combination. If Gateway is not able to integrate its business with eMachines’ business as anticipated, the benefits of the transaction would not be realized fully or at all or may take longer to be realized than expected. For example, it is possible that the integration process could result in disruption to or loss of key suppliers, customers or employees. Although Gateway believes it will be strengthened by adding eMachines’ retail channel and value priced PC product lines, Gateway may not be

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able to successfully combine and use to its best advantage the differing distribution and product models of the two companies. For example, potential conflict between third-party retailers and Gateway’s retail stores may adversely impact our combined retail sales. In addition, there are risks and uncertainties relating to the combination of senior management teams, as contemplated by the eMachines transaction, under which the chief executive officer of eMachines will become the new chief executive officer of Gateway. There are also risks and uncertainties from potential market volatility arising from Gateway’s increased shares outstanding, subject to certain sale restrictions agreed to in connection with the transaction.

Competitive Market Conditions.    The PC and consumer electronics industries are characterized by aggressive pricing by several large branded and numerous generic competitors, short product life cycles, and price sensitivity by customers. We also compete with consumer electronics retailers and manufacturers with respect to our CE/non-PC products and services. Many of our competitors in the PC and consumer electronics industries have greater financial, marketing, manufacturing and technological resources. Consolidation in the PC industry has resulted in larger and stronger competitors in many of our markets and we have experienced increased competition in the PC industry. We compete primarily on the basis of customer satisfaction, value, technology, product offerings with new performance features, operational efficiency, quality, reliability, brand, our retail network and their locations, customer service and support and by maintaining supplier relationships to enable us to bring products quickly to market. Gateway has lost market share in the competitive PC market. In addition, we compete in the consumer electronics industry in part by offering new technology at value prices which at times are lower than prevailing market prices. To the extent we are unable to compete successfully in the PC and consumer electronics markets, our revenues and business prospects would be affected adversely. We expect these competitive pressures to continue into the foreseeable future. We also expect that average sales prices for PCs will continue to decline. If we continue to reduce PC prices in response to competition, we may be unable to maintain or improve gross margins through cost reductions or offsetting sales of higher margin consumer electronics and non-PC products.

General Economic and Business Conditions and Current Political Uncertainty.    Weak economic conditions in the United States since 2001 have adversely affected our product sales. Although there are signs of an economic recovery, if general economic and industry conditions fail to improve or again deteriorate, demand for our products could continue to be adversely affected, as could the financial health of Gateway’s suppliers and resellers. Reductions in state and federal budgets as a result of current economic conditions have adversely affected our sales to many of our customers in the public sector. In addition, war and the related political and economic uncertainties, terrorist attacks, national and international responses to terrorist attacks, and other acts of war or hostility could materially adversely affect our future operating results and financial condition.

Declining Net Sales; Continued Net Losses.    Our revenue growth and profitability depend significantly on the overall demand for PCs and related products and services. From 2000 until the latter half of 2003, the rate of general growth in demand for PCs and related products had slowed as a result of market maturation and deteriorating economic conditions. The rate of growth, market maturation and resulting competitive pressures has resulted in lower average selling prices for our PCs and has adversely impacted demand for our PCs and related products and services to a greater extent than it has impacted some of our PC competitors. In this environment of declining average sales prices, our revenues and PC market share have declined. As a result, we have experienced a net loss in 12 of the last 13 calendar quarters. Our results may continue to decline despite broadening of our product lines in the consumer electronics area. Continued deterioration in our PC unit sales would materially adversely affect Gateway’s future results of operations and financial condition.

Product Mix.    Our product mix significantly impacts our profitability. Our plans to improve gross margins depend substantially on increasing our sales of higher margin consumer electronics and non-PC products and services as a percentage of our net sales. While we have plans to continue increasing our marketing and sales efforts focused on consumer electronics and non-PC products and services, we have limited experience with these products and services and cannot predict market acceptance of our products with complete accuracy. If we are unable to increase sales of higher margin consumer electronics and non-PC products and services, or if

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margins decline in the CE/non-PC products and services we sell, our ability to return to profitability will likely be adversely impacted.

Attraction and Retention of Customers in a Cost-Effective Manner.    Our business strategy depends on increasing our overall number of customer transactions in a cost-effective manner. In order to increase our number of transactions, we must attract new prospects and repeat customers to our various marketing channels, including our website, our telephone call centers and our retail stores, and then convert these interactions into closed sales transactions. Although we have spent significant financial resources on sales and marketing and plan to continue to do so, there are no assurances that these efforts will be cost effective at attracting new customers or increasing transaction volume. In particular, we believe that the cost for desirable advertising and marketing placements are likely to increase in the foreseeable future, and we may be disadvantaged relative to our larger competitors in our ability to expand or maintain our advertising and marketing commitments. If we do not achieve increased transaction volume, our ability to grow and become profitable would be adversely impacted.

Limited Consumer Electronics Sales History.    Our consumer electronics sales strategy was significantly expanded in 2003. Our limited experience selling high volumes of consumer electronics products may adversely impact our ability to forecast results.

Selling, General and Administrative Costs.    As a result of costs associated with selling and marketing our products and services, particularly in our retail stores, Gateway incurs higher selling, general and administrative costs as a percent of revenue, than many of our competitors. While SG&A costs, before restructuring and transformation expenses, decreased approximately $150 million in 2003 from 2002, total SG&A costs decreased by $103 million in part due to restructuring and transformation expenses. Future restructuring, business transformation or other expenses could increase our SG&A costs and could negatively impact our future results and financial condition. In addition, if Gateway is unable to develop and/or sell products with relatively high gross margins, our results of operations would be materially adversely affected by our higher SG&A cost structure, particularly in our retail stores.

Gateway’s Retail Operations.    Our retail operations and infrastructure require substantial investment in leasehold improvements, equipment, information systems, inventory, and personnel. Gateway has also entered into substantial operating lease commitments for retail space and a relatively high proportion of each store’s costs are fixed because of depreciation on store leasehold improvement costs and lease expenses. As a result, if we are unable to improve the performance of our retail stores, particularly through CE/non-PC products revenue and gross margins, our retail operations objectives may not be achieved.

During 2002 and 2003, we expanded the product offering in our retail stores beyond PCs, peripheral products and software, to include CE/non-PC products and services. We have limited experience as a major retailer of CE/non-PC products and services and if we are unable to compete profitably in these highly competitive retail markets, our results of operations and financial condition could be materially adversely affected. In addition, our modified business model requires additional inventory of products in our retail stores which increases our exposure to the risks of excess inventory or too little inventory if we are unable to forecast product demand accurately. Increased inventory levels present additional management and control risks. We are also increasingly exposed to other inventory risks described below.

During 2003, we closed 82 retail locations and exited the year with 190 Gateway retail stores. During the second half of 2003, we remodeled six pilot retail stores to better accommodate our broader product line and customer focused sales approach. The rest of our retail network was refurbished in the second half of 2003, with most of the stores completed in the third quarter. However, the remodeling investment may not result in substantially increased sales. If Gateway chooses to close a significant number of individual stores, we could incur substantial costs. Such costs could adversely affect our results and financial condition.

Retail operations present many other risks and uncertainties, some of which are beyond Gateway’s control. For instance, our retail operations are subject to the risk of macro-economic factors that could have a negative

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impact on general retail activity; consumer acceptance of Gateway’s retail approach; our potential inability to sell third-party products and services at adequate margins; our potential inability to manage relationships with existing retail channel partners; our lack of experience in managing retail operations; the costs associated with unanticipated fluctuations in the value of Gateway-branded and third-party retail inventory; and our potential inability to obtain and retain quality retail locations at reasonable costs.

Outsourcing and Corporate Restructuring.    As part of our transformation, we are increasingly dependent upon third-party providers of products and services. During 2003, we outsourced a substantial portion of our manufacturing operations, service and support operations together with the implementation of new IT systems and a number of administrative services to third-party providers under contract. Although we have partnered with major vendors to implement these activities and systems, there is no assurance that we will avoid business interruptions in connection with the implementation of these activities or the possibility that the systems will not scale to meet the needs of our business. If we are unable to properly manage these outsourcing providers or accurately forecast our demand requirements of them, our revenues and gross margins may be adversely affected. Similarly, if our third-party providers do not comply with their contractual obligations, our results of operations could be adversely impacted. Our reliance on third party suppliers for the provision of employees could expose us to various legal claims relating to their employment status. Cost-cutting efforts have been implemented in recent periods and are contemplated in the future. Our ability to motivate employees and maintain employee morale during our restructuring and transformation may be adversely impacted by workforce reductions and general uncertainties. Moreover, our business creates ongoing demands for personnel, facilities, information and internal control systems and other infrastructure requirements. If we are unable to maintain and develop our infrastructure while reducing costs, we could experience disruptions in operations, which could have an adverse financial impact.

Suppliers.    We require a high volume of quality products and components for our PC and CE/non-PC offerings, substantially all of which we obtain from outside suppliers. In some circumstances we maintain single-source supplier relationships, such as with Microsoft for operating system products and Intel for PC microprocessors. If the supply of a key material product or component is delayed or curtailed, our ability to ship the related product or service in desired quantities and in a timely and cost-effective manner could be adversely affected. We seek to mitigate a portion of these risks by maintaining insurance to protect ourselves against loss of profits due to a supplier’s inability to perform due to an insurable property loss. In addition, we seek to mitigate such risks by having dual sources of supply where appropriate and by using reputable and reliable suppliers. However, even where multiple suppliers are available, certain key components are at times subject to industry-wide availability and pricing pressures. In cases where we need to switch to another supplier and alternative sources of supply are available, qualification of the sources and establishment of reliable supplies could result in delays and possible reduction in net sales. In the event that the financial condition of our third-party suppliers for key products or components were to erode, the delay or curtailment of deliveries of such products or components could occur.

Our reliance on third-party suppliers of key products and components exposes us to potential product quality issues that could affect the reliability and performance of our products and services. While such outsourcing arrangements, including the outsourcing of a substantial portion of manufacturing, may lower the fixed cost of operations, they also reduce our direct control over production and distribution. If we are unable to ship our products and solutions in desired quantities and in a timely manner due to a delay or curtailment of the supply of material products or components, or product quality issues due to faulty products or components manufactured by third-party suppliers, the market for our products or services could be adversely affected with a resulting reduction in revenues. Our estimated warranty and extended warranty costs are affected by ongoing product failure rates and specific product class failures. If product failure rates, material usage or service delivery costs exceed our estimates due to faulty products or components manufactured by third-party suppliers, warranty expenses may increase. In many instances we rely on offshore suppliers, particularly from Asia, for product assembly and manufacturing, and risks associated with transportation and other natural or human factors may disrupt the flow of product. If for any reason manufacturing or logistics in any of these locations or the

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subsequent transportation to the U.S. or other customer locations, is disrupted by economic, business, environmental, political, medical, or military conditions or events, Gateway’s results of operations and financial condition could be adversely affected.

Consumer Financing.    Reduced availability of financing generally or additional tightening in consumer credit policies from our third-party financial partners could materially and adversely affect our operations and financial results. In 2003, third-party financial institutions provided financing of approximately 26% of our consumer net sales on a non-recourse basis to Gateway

Beginning in the fourth quarter of 2002, our primary third-party financing partner adopted a more conservative credit policy. At the same time, this partner also established termination provisions that give this lender the right to provide us with 60 days written notice of its intent to terminate further customer financing in the event of a change in control at Gateway or if Gateway does not meet certain financial liquidity conditions. In light of this, we have diversified the business among our three consumer financing partners. The objective of these efforts is to expand the customer financing available through our other existing partners and any additional financing partners to reduce or eliminate the risk associated with any termination of any one agreement. If one or more of our third-party lending arrangements are terminated or reduced, without replacement or an increase in the amount of financing provided by the remaining lenders, we may experience a decrease in consumer net sales from levels we might otherwise achieve.

Fraud and Online Commerce Security.    We bear some of the financial risk from products or services purchased via fraudulent payment methods, even though historically the financial risk has been immaterial. Although we have implemented a number of anti-fraud measures, a failure to adequately control fraudulent methods of payment could adversely affect our operations and financial results.

In addition, customer concerns over the security of transactions conducted on the internet or the privacy of user information may inhibit the growth of our web sales. To transmit confidential information, such as customer credit card numbers securely, we rely on encryption and authentication technology. Unanticipated events or developments could result in a compromise or breach of the systems we use to protect customer transaction data. Furthermore, our servers and those of our service providers may be vulnerable to viruses, other harmful code or harmful activity transmitted over the internet. While we proactively search and protect against intrusions into our infrastructure, a virus, other harmful code or harmful activity could cause a service disruption.

Product Introductions and Short Product Cycles.    Our business model depends on bringing new products to market quickly. The success of our product introductions depends on many factors including the availability of new products, successful quality control and launch readiness efforts, our ability to forecast successfully product demand, training of sales and support personnel, and customer acceptance of new technology. If we are unable to forecast successfully demand for new products, we may not properly manage our inventory levels and may have increased exposure to the risks of supply described above in Suppliers.

Short product life cycles resulting from rapid changes in technology and consumer preferences and declining product prices characterize the PC and consumer electronics industries. Our internal engineering personnel work closely with product and component suppliers and other technology developers to evaluate the latest developments in PC and CE/non-PC products. There is no assurance that we will continue to have access to or the right to use new technology, or be successful in incorporating such new technology in our products in a timely manner.

Third-Party Patents and Intellectual Property.    There is no assurance that we will continue to have access to existing or new third-party technology for use in our products. While it may be necessary in the future to seek or renew licenses relating to various aspects of our products and business methods, Gateway believes that based upon past experience and industry practice, such licenses generally can be obtained on commercially reasonable terms. However, there is no assurance that the necessary licenses would be available on acceptable terms. If we

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or our suppliers are unable to obtain such licenses, we may be forced to market products without certain desirable technological features. We could also incur substantial costs to redesign our products around other parties’ protected technology.

Because of technological changes in the PC and consumer electronics industries, current extensive patent coverage, and the rapid rate of issuance of new patents, it is possible certain components of Gateway’s products and business methods may unknowingly infringe existing patents of others. Responding to such claims, regardless of their merit, can be time consuming, result in significant expenses, and cause the diversion of management and technical personnel. In addition, we may not be able to rely on our outside suppliers to adequately defend any patent infringement claims against Gateway-branded consumer electronics products. If any outside suppliers of these Gateway-branded products is unable to uphold its contractual agreement to indemnify us from claims that Gateway is infringing patents of others, our future operating results and financial condition could be materially adversely affected.

Inventory Risks.    By distributing products directly to our customers, we have historically been able to avoid the need to maintain high levels of finished goods inventory. This has minimized costs and allowed us to respond more quickly to changing customer demands, reducing our exposure to the risk of product obsolescence. If we are not successful in forecasting product demand, we could have excess or insufficient inventory of certain products. During 2003, we continued to expand the level of finished goods inventory of PCs and CE/non-PC products in our retail stores based on our expectations for demand, increasing the risk that we could have excess inventory in finished products. We ended the fourth quarter of 2003 with higher than anticipated levels of retail and other inventory of $114 million, of which $50 million is retail inventory. The retail inventory may decline in value if we are unable to sell it in a timely manner.

In addition, we maintain certain component products in inventory. A decrease in market demand or a decision to increase supply, among other factors, could result in higher finished goods and component inventory levels, and a decrease in value of this inventory could have a negative effect on our results of operations. For example, the continued decline in PC prices may decrease the value of any PC inventory in our retail stores.

Key Personnel.    Our success depends in large part on our ability to retain and attract key personnel. There can also be no assurance that we will continue to successfully retain or attract the management talent we need. The inability to retain or attract such key personnel could materially adversely affect our future operating results and financial condition.

Risks of Minority Investments.    We hold a limited number of and may consider additional minority investments in companies having operations or technology in areas within or ancillary to our strategic focus. Some of these investments have been in early stage companies where operations are not yet sufficient to establish them as profitable concerns. Certain of these investments are in publicly traded companies whose share prices are highly volatile. Adverse changes in market conditions such as has occurred since late 2000 and poor operating results of certain of these underlying investments have resulted, and may in the future result, in our incurring losses or an inability to recover the original carrying value of our investment.

Risks of Acquisitions, Joint Ventures and Strategic Alliances.    We have entered into certain strategic alliances and acquired certain businesses that we believe are complementary to our operations. We may make additional acquisitions and enter into joint ventures in the future. See Note 15 of the Notes to the Consolidated Financial Statements. While we believe we will effectively integrate such businesses, joint ventures, or strategic alliances with our own, we may be unable to successfully do so and may be unable to realize expected cost savings and/or sales growth. These transactions may involve significant other risks and uncertainties, including distraction of management’s attention away from normal business operations, insufficient revenue generation to offset liabilities assumed and expenses associated with the transaction, and unidentified issues not discovered in Gateway’s due diligence process, such as product quality issues and legal contingencies. In addition, in the case of acquisitions, we may be unable to smoothly integrate the acquired companies’ marketing, production, development, distribution and management systems. In the case of certain strategic alliances involving services

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by third-parties to Gateway, we may be dependent upon the financial reporting methodology selected by our strategic partners for the calculation of payments to Gateway. Our operating results could be adversely affected by any problems arising during or from acquisitions or from modifications or termination of joint ventures and strategic alliances or the inability to effectively integrate any future acquisitions. If we decide to issue Gateway Common Stock or other equity related purchase rights as consideration in a transaction, such as we decided in the case of the eMachines acquisition, current stockholders’ ownership percentage and earnings per share may become diluted.

Environmental Regulations.    Production and marketing of products in certain states and countries may subject Gateway to environmental and other regulations. Although Gateway does not anticipate any material adverse effects in the future based on the nature of our operations and the effect of such laws, there is no assurance that such existing laws or future laws will not have a material adverse effect on Gateway.

Customer Sales Mix.    Our profits vary by type of customer and product mix. As a result, our results of operations and profitability for a particular period will depend, in part, on the corresponding mix of customers including increasing sales to professional customers and sales of CE/non-PC products to consumers. Government contracts are subject to the right of the government to terminate for convenience and subject to vendor suspension or disbarment in the event of certain violations of legal and regulatory requirements. In the event we do not meet such government requirements, Gateway’s results of operations and financial condition could be adversely affected.

Item 2.    Properties

The following are Gateway’s principal administrative and sales offices, production and manufacturing facilities, and support and training centers in the following locations:

As of December 31, 2003 we leased store space for our 190 retail locations throughout the United States. We are actively seeking to terminate or sublease 33 retail locations which we have closed. We also continue to actively market for sale or sublease warehouse, office and distribution facilities in Lake Forest, California; San Diego, California; Lakewood, Colorado; Beverly, Massachusetts; Vermillion, South Dakota; Salt Lake City, Utah; and Hampton, Virginia.

We exited substantially all of our company-owned international operations outside of North America in 2001, and currently own a facility in Dublin, Ireland, our former European headquarters, which we are marketing for sale. We have exited substantially all of our European leases.

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We believe that our administrative and sales office