U.S. economy and the aftereffects of the events of September 11, 2001, the Company now expects its Retail segment to suffer a small loss for the first quarter of 2002 and for all of fiscal 2002.

The foregoing statements concerning the expected results of the Retail segment are forward-looking. The Retail segment's future results could differ. Results for this segment are dependent upon a number of risks and uncertainties, some of which are discussed throughout this Item 2, including the discussion under the heading "Factors That May Affect Future Results and Financial Condition."

Backlog  In the Company's experience, the actual amount of product backlog at any particular time is not a meaningful indication of its future business prospects. In particular, backlog often increases in anticipation of or immediately following new product introductions because of over-ordering by dealers anticipating shortages. Backlog often is reduced once dealers and customers believe they can obtain sufficient supply. Because of the foregoing, backlog should not be considered a reliable indicator of the Company's ability to achieve any particular level of revenue or financial performance. Further information regarding the Company's backlog may be found below under the heading "Factors That May Affect Future Results and Financial Condition," which information is hereby incorporated by reference.

Gross Margin  Gross margin declined to 23.0% of net sales in 2001 from 27.1% in 2000. This decline resulted primarily from gross margin of negative 2.1% experienced during the first quarter of 2001 compared to 25.9% gross margin for the same quarter in 2000. In addition to lower than normal net sales, first quarter 2001 margins were negatively impacted by the rebate programs and price cuts discussed above that decreased revenue by approximately $138 million. Additionally, actual and forecasted declines in net sales caused the Company to recognize during the first quarter of 2001 approximately $122 million of charges associated with purchase order cancellations and loss commitments for component purchases. Without these charges, gross margin for the first quarter of 2001 would have been approximately 21%, and gross margin for all of 2001 would have been approximately 27.2%. As a percentage of net sales, the Company's gross margin increased each quarter as 2001 progressed reaching 30.1% during the fourth quarter. This trend reflects the favorable impact during 2001 of declining component costs; especially for DRAM, hard drives, and flat panel screens. The Company currently anticipates that component costs will rise during 2002 as suppliers adjust capacity to demand and worldwide economic conditions stabilize or improve. This anticipated rise in component costs is expected to have a negative impact on the Company's gross margin during 2002.

The foregoing statements regarding anticipated industry component pricing and the Company's anticipated gross margin in 2002 are forward-looking. Gross margin could differ from anticipated levels because of several factors, including certain of those set forth below in the subsection entitled "Factors That May Affect Future Results