In a conference call held to issue an earnings warning, Gateway executives said Intel was unable to ship adequate supplies of low-end microprocessors during the fourth quarter, and strongly hinted that the company will begin to buy processors from another microprocessor supplier -- most likely Advanced Micro Devices Inc. -- within the next week or two.

Gateway now expects to report fourth-quarter revenue of $2.45 billion and a profit of 42 cents a share -- lower than the 49-cent-per-share consensus estimate issued by a First Call Corp. poll.

"In terms of the fourth quarter, let me say that it's an understatement when I tell you that we're all intensely frustrated by the supply situation we found ourselves put in," said Jeff Weitzen, president and CEO of Gateway, based here. "But let me say that we are not about to stand by and let the actions of others dictate what products Gateway customers can buy.

"In the next week or so, you're going to hear about aggressive and definitive steps we're taking to make sure this does not occur again," Weitzen said.

John Todd, Gateway's senior vice president and chief financial officer, said supplies of Intel's 450-MHz Pentium III and 400-MHz Celeron processors, which drive PCs in the $999 to $1,299 "sweet spot" segment that made up 55% of Gateway's third-quarter business, were woefully inadequate. The shortage forced Gateway to constantly adjust its advertising message, and unit sales in that pricing range are now expected to drop to about 40%, according to the company.

"In the simplest terms, we didn't know what processors we were going to get in the next couple of days," Todd said.

A source at another OEM confirmed the supply issue and said that Intel had been persuaded to sell the company 500-MHz Pentium IIIs at 450-MHz prices to keep the OEM's production lines moving.

Representatives from Intel, in Santa Clara, Calif., were unavailable for comment.

Gateway, which depends on Intel almost exclusively for motherboards as well as processors, said Intel's aggressive price moves throughout 1999 had persuaded it to essentially drop AMD from its lineup. The company said it's logistically easier to use a single supplier -- but only if it can deliver parts.

"The Intel issue never got materially better," Todd said during the conference call. "There was spotty performance. As recently as last week we had a 450-MHz [supply] problem. There was no consistency to deliveries, and we just ran out of time."

Weitzen said delays to the Intel 820 chip set forced Gateway to become a supplier of only older systems based on the Intel 440BX chip set. "But we're taking steps to ensure that whether a supplier has problems or not doesn't ultimately affect how we appear in the marketplace and we don't end up in this situation again," he said.

A spokesman for AMD in Sunnyvale, Calif., said that the company had done business with Gateway in the past and had competed for its business. But AMD would not say whether it is renegotiating a supplier contract with Gateway.

Given AMD's position as the only viable competitor to Intel in the PC-processor market -- and Weitzen's evident frustration at allowing his company to be caught in a single-supplier relationship -- observers said a supply deal between AMD and Gateway could be imminent.

In additon to the lack of processor supplies, Todd said a sharp decline in enterprise sales, which fell 31% in December alone, combined with slow sales to government and education customers related to Y2K concerns, took $200-to-$250 million -- or about 30-to-35% -- away from the company's top-line revenues. Still, unit sales and dollar revenue are expected to grow 18% and 6%, respectively, from the same period a year ago, he said.