SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549


                                    FORM 10-Q

[X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
                                       OR
[ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
        SECURITIES EXCHANGE ACT OF 1934
        FOR THE TRANSITION PERIOD FROM__________TO__________
                                  
                         COMMISSION FILE NUMBER 0-22784

                               GATEWAY 2000, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

          DELAWARE                                               42-1249184
(STATE OR OTHER JURISDICTION OF                               (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION)                               IDENTIFICATION NO.)

                                610 GATEWAY DRIVE
                                  P.O. BOX 2000
                      NORTH SIOUX CITY, SOUTH DAKOTA 57049
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, ZIP CODE)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (605) 232-2000


         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 for 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 ____.

         As of November 7, 1996, there were 76,682,608 shares of the Common
Stock of the Company, $.01 par value per share, outstanding. As of November 7,
1996, there were no shares of the Company's Class A Common Stock, $.01 par value
per share, outstanding.

                            I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                               GATEWAY 2000, INC.
                    CONSOLIDATED STATEMENTS OF OPERATIONS 
        FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
                    (in thousands, except per share amounts)
                                   (Unaudited)

                                                   THREE MONTHS ENDED            NINE MONTHS ENDED 
                                                     SEPTEMBER 30,                 SEPTEMBER 30,
                                                ----------------------------------------------------
                                                   1995          1996          1995          1996
                                                ----------    ----------    ----------    ----------
<S>                                             <C>           <C>           <C>           <C>       
Net sales                                       $  888,674    $1,202,933    $2,431,095    $3,482,398
Cost of goods sold                                 742,817       972,011     2,039,810     2,821,896
                                                ----------    ----------    ----------    ----------
    Gross profit                                   145,857       230,922       391,285       660,502
Selling, general and administrative expenses        84,796       143,165       230,879       431,442
                                                ----------    ----------    ----------    ----------
    Operating income                                61,061        87,757       160,406       229,060
Other income, net                                    3,383         6,087        12,559        19,086
                                                ----------    ----------    ----------    ----------
    Income before income taxes                      64,444        93,844       172,965       248,146
Provision for income taxes                          23,518        33,148        58,808        85,610
                                                ----------    ----------    ----------    ----------
    Net income                                  $   40,926    $   60,696    $  114,157    $  162,536
                                                ==========    ==========    ==========    ==========
Share and per share information:
        Net income per share                    $     0.52    $     0.78    $     1.45    $     2.08
                                                ==========    ==========    ==========    ==========
        Weighted average shares and share       
        equivalents outstanding                     79,165        78,138        78,943        77,972
                                                ==========    ==========    ==========    ==========

The accompanying notes are an integral part of the consolidated financial 
statements.
</TABLE>


<TABLE>
<CAPTION>
                               GATEWAY 2000, INC.
                           CONSOLIDATED BALANCE SHEETS

                    DECEMBER 31, 1995 AND SEPTEMBER 30, 1996
               (in thousands, except share and per share amounts)
                                   (Unaudited)

                                                                                DECEMBER 31,   SEPTEMBER 30,
                                                                                   1995            1996
                                                                                -----------     -----------
<S>                                                                             <C>             <C>        
ASSETS

Current assets:
     Cash and cash equivalents                                                  $   166,397     $   401,126
     Marketable securities                                                            3,032            --
     Accounts receivable, net                                                       405,283         401,581
     Inventory                                                                      224,916         210,598
     Deferred income taxes                                                           40,908          38,139
     Other                                                                           25,653          30,645
                                                                                -----------     -----------
           Total current assets                                                     866,189       1,082,089

Property, plant and equipment, net                                                  170,263         235,677
Software costs, net                                                                  58,477          73,095
Other assets                                                                         29,082          25,701
                                                                                -----------     -----------
                                                                                $ 1,124,011     $ 1,416,562
                                                                                ===========     ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Notes payable and current maturities of long-term obligations              $    13,564     $     8,936
     Accounts payable                                                               235,064         334,187
     Accrued liabilities                                                            108,976         144,412
     Accrued royalties payable                                                      123,385         114,589
     Customer prepayments                                                            16,397           9,256
     Income taxes payable                                                            27,905          11,190
                                                                                -----------     -----------
           Total current liabilities                                                525,291         622,570

Long-term obligations, net of current maturities                                     10,805          12,374
Deferred income taxes                                                                 6,744          11,560
Other liabilities                                                                    25,652          45,069
                                                                                -----------     -----------
           Total liabilities                                                        568,492         691,573
                                                                                -----------     -----------
Contingencies (Note 4)

Stockholders' equity:
     Preferred Stock, $.01 par value, 5,000,000 shares authorized; none
       issued and outstanding                                                          --              --
     Class A Common Stock, nonvoting, $.01 par value, 1,000,000 shares
       authorized; none issued and outstanding                                         --              --
     Common Stock, $.01 par value, 220,000,000 shares authorized;
       74,552,864 shares and 76,670,133 shares issued and outstanding,
       respectively                                                                     746             767
     Additional paid-in capital                                                     280,447         286,838
     Cumulative translation adjustment                                                  324             815
     Unrealized loss on marketable securities                                           (31)           --   
     Retained earnings                                                              274,033         436,569
                                                                                -----------     -----------
            Total stockholders' equity                                              555,519         724,989
                                                                                -----------     -----------
                                                                                $ 1,124,011     $ 1,416,562
                                                                                ===========     ===========

The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>


<TABLE>
<CAPTION>
                               GATEWAY 2000, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
                                 (in thousands)
                                   (Unaudited)

                                                                  NINE MONTHS ENDED SEPTEMBER 30,
                                                                  -------------------------------
                                                                         1995          1996
                                                                      ---------     ---------
<S>                                                                   <C>           <C>      
Cash flows from operating activities:
     Net income                                                       $ 114,157     $ 162,536
     Adjustments to reconcile net income to net
      cash provided by (used in) operating activities:
        Depreciation and amortization                                    24,083        41,844
        Provision for uncollectible accounts receivable                   4,480        13,760
        Deferred income taxes                                               (24)        6,148
        Other, net                                                         (302)        2,034
        Changes in operating assets and liabilities:
            Accounts receivable                                         (44,160)      (10,058)
            Inventory                                                  (129,140)       (1,476)
            Other current assets                                        (46,405)       (4,928)
            Accounts payable                                             40,865        99,123
            Accrued liabilities                                          22,011        11,410
            Accrued royalties                                            13,491        (8,796)
            Customer prepayments                                         (6,376)       (7,141)
            Income taxes payable                                          1,661        12,288
            Other liabilities                                             9,791        21,335
                                                                      ---------     ---------
                Net cash provided by operating activities                 4,132       338,079
                                                                      ---------     ---------
Cash flows from investing activities:
     Capital expenditures                                               (38,316)      (79,564)
     Software costs                                                     (24,923)      (22,615)
     Purchases of available-for-sale securities                         (10,679)         --   
     Purchases of held-to-maturity securities                            (1,685)         --   
     Proceeds from sale of available-for-sale securities                 22,605          --   
     Proceeds from maturities of held-to-maturity securities              5,000          --   
     Acquisitions, net of cash acquired                                  (3,620)         --   
     Payment received on note                                              --           5,000
     Other, net                                                          (9,256)       (4,739)
                                                                      ---------     ---------
        Net cash used in investing activities                           (60,874)     (101,918)
                                                                      ---------     ---------

Cash flows from financing activities:
     Proceeds from issuance of notes payable                              5,000        10,297
     Principal payments on long-term obligations and notes payable      (13,090)      (12,543)
     Stock options exercised                                                751         1,780
                                                                      ---------     ---------
        Net cash used in financing activities                            (7,339)         (466)
Foreign exchange effect on cash and cash equivalents                       (361)         (966)
                                                                      ---------     ---------
Net increase (decrease) in cash and cash equivalents                    (64,442)      234,729
Cash and cash equivalents, beginning of period                          214,021       166,397
                                                                      ---------     ---------
Cash and cash equivalents, end of period                              $ 149,579   $   401,126
                                                                      =========     =========

The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>


1. GENERAL:

             The accompanying unaudited consolidated financial statements of
Gateway 2000, Inc. (the "Company") as of September 30, 1996 have been prepared
on the same basis as the audited consolidated financial statements for the year
ended December 31, 1995 and, in the opinion of management, reflect all
adjustments necessary to fairly state the consolidated financial position, and
the consolidated results of operations and cash flows for the interim period.
All adjustments are of a normal, recurring nature. The results for the interim
period are not necessarily indicative of results to be expected for any other
interim period or the entire year. These financial statements should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto for the year ended December 31, 1995, which are included in the
Company's 1995 Annual Report to the Securities and Exchange Commission on Form
10-K. The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities, and the reported
amounts of revenues and expenses during the reported period. Actual results
could differ from those estimates.

2. SHARE AND PER SHARE INFORMATION

             Net income per share has been computed using net income for the
three and nine months ended September 30, 1995 and 1996 and the weighted average
number of common shares and common share equivalents (if dilutive) outstanding
during the period. Common share equivalents considered outstanding relate to
stock options and have been calculated using the treasury stock method for all
periods presented.

3. SELECTED BALANCE SHEET INFORMATION:
                                                 DECEMBER 31,  SEPTEMBER 30,
                                                     1995          1996
                                                 ------------  -------------
                                                        (Unaudited)
                                                      (In thousands)

Marketable securities:
     Available-for-sale                           $   3,032     $   --
                                                  =========     =========

Accounts receivable, net:
     Accounts receivable                          $ 416,837     $ 420,141
     Less allowance for uncollectible accounts      (11,554)      (18,560)
                                                  ---------     ---------
                                                  $ 405,283     $ 401,581
                                                  =========     =========

Inventory:
     Components and subassemblies                 $ 221,601     $ 199,635
     Finished goods                                   3,315        10,963
                                                  ---------     ---------
                                                  $ 224,916     $ 210,598
                                                  =========     =========

4.  CONTINGENCIES

         Three virtually identical class action lawsuits were filed against the
Company and its directors by certain stockholders on June 27, June 28 and July
1, 1994 in the U.S. District Court for the District of South Dakota. Also
originally named as defendants in the cases were Goldman, Sachs & Co. and
PaineWebber Incorporated, which acted as the lead underwriters in the Company's
initial public offering of its Common Stock on December 14, 1993 (the "Initial
Public Offering"). The plaintiffs added Norman W. Waitt, Jr. as a defendant on
December 12, 1994. On January 12, 1995, the plaintiffs and underwriter
defendants agreed to dismiss plaintiffs' claims against such defendants without
prejudice and to toll the statute of limitations with respect to plaintiffs'
claims. In July 1995, one of the lawsuits was voluntarily dismissed by the
plaintiff without prejudice. In substance, the lawsuits alleged that the
defendants violated federal securities laws by causing or permitting the Company
to issue false and misleading statements and false financial statements during
the period December 7, 1993 through June 23, 1994 (the "Complaint Period"). The
plaintiffs purportedly brought the actions on behalf of all persons who
purchased or otherwise acquired the Common Stock during the Complaint Period.
The remaining lawsuits were dismissed with prejudice against all the remaining
defendants on August 18, 1995. Thereafter, plaintiffs filed a motion for
reconsideration and for leave to file an amended complaint, both of which were
denied on January 19, 1996. On February 14, 1996, plaintiffs filed their notice
of appeal to the United States Court of Appeals for the Eighth Circuit and
briefing of the appeal is complete by both parties. Nevertheless, the Company
believes this appeal is without merit and shall continue to defend itself and
its directors vigorously.

         For a description of the factors that may affect future results see
"Financial Information-Management's Discussion and Analysis of Financial
Condition and Results of Operations-Factors That May Affect Future
Results-Potential Liability for Sales, Use or Income Taxes" on page 11 of this
Report, "Litigation" in the same section on page 11 of this Report,
"Infringement of Intellectual Property Rights" in the same section on page 11 of
this Report and "Other Information-Legal Proceedings" on page 12 of this Report.

ITEM 2.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
             RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

         The following table sets forth, for the periods indicated, certain data
derived from the Company's consolidated statements of operations, expressed as a
percentage of net sales:

<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED          NINE MONTHS ENDED 
                                                          SEPTEMBER 30,               SEPTEMBER 30,
                                                      --------------------        --------------------
                                                       1995          1996          1995          1996
                                                      ------        ------        ------        ------
<S>                                                   <C>           <C>           <C>           <C>   
Net sales                                             100.0%        100.0%        100.0%        100.0%
Cost of goods sold                                     83.6%         80.8%         83.9%         81.0%
                                                      ------        ------        ------        ------
     Gross profit                                      16.4%         19.2%         16.1%         19.0%
Selling, general and administrative expenses            9.5%         11.9%          9.5%         12.4%
                                                      ------        ------        ------        ------
     Operating income                                   6.9%          7.3%          6.6%          6.6%
Other income, net                                       0.4%          0.5%          0.5%          0.5%
                                                      ------        ------        ------        ------
     Income before income taxes                         7.3%          7.8%          7.1%          7.1%
Provision for income taxes                              2.7%          2.8%          2.4%          2.4%
                                                      ------        ------        ------        ------
     Net income                                         4.6%          5.0%          4.7%          4.7%
                                                      ======        ======        ======        ======
</TABLE>

         Sales. Sales increased 35% in the third quarter of 1996 to $1.20
billion from $889 million in the third quarter of 1995. For the nine months
ended September 30 sales increased 43% to $3.48 billion from $2.43 billion in
the comparable period of 1995. Sales in the third quarter of 1996 increased 5.8%
from sales in the second quarter of 1996. The increase in sales for the third
quarter and first nine months of 1996 over the comparable periods of 1995
resulted from continued demand growth in the Americas and European markets,
expansion into the Japanese and Australian markets, and accelerated growth in
sales of the Company's portable products.

         Unit shipments in the quarter increased 46% to approximately 474,000
from 325,000 in the third quarter of 1995. For the nine months ended September
30, unit shipments increased 43% to approximately 1,298,000 from approximately
909,000 in the first nine months of 1995. Unit shipments for the third quarter
increased 11.9% over unit shipments in the second quarter of 1996. Unit
shipments in the Company's America's region grew 40% over the third quarter of
1995 and increased 11.8% over the second quarter of 1996. In the Company's
European region, unit shipments in the quarter grew 41% over the third quarter
of 1995 and 10.1% over the second quarter of 1996. Unit shipments in the third
quarter in the Company's Asia-Pacific region grew 17.8% over the second quarter
of 1996. Comparison of the results of the Asia-Pacific region to the prior year
is not possible since the results of operations were not reflected until the
fourth quarter of 1995.

         For the first nine months of 1996 weighted average unit prices were
essentially the same as prices in the first nine months of 1995. Prices in the
third quarter of 1996 however were 7.3% lower than prices in the third quarter
of 1995 and 5.4% lower than prices in the second quarter of 1996. Generally unit
prices for specific PC products have decreased over time reflecting the effects
of competition and reduced component costs associated with advances in
technology. The Company has generally offset such decreasing unit prices by
adding or improving product features and by introducing new products based on
newer technology at higher unit prices. In 1995, component costs did not
experience normal declines and when new technology was introduced, prices
gradually increased throughout the year. In 1996 component prices again began to
decline and in particular significant cost declines were experienced in Dynamic
Random Access Memory (DRAM) prices. These declines in component costs have been
passed on to customers through price decreases. Average unit price declines in
the Company's international operations have been more significant than the
declines experienced in the Company's America's region resulting in revenue
growth at a rate less than the growth in unit shipments.

         Revenues in the Americas region for the quarter increased to $1.02
billion, an increase of 30% over the $790.6 million recorded in the third
quarter of 1995 and an increase of 6.6% over the second quarter. For the nine
month period ended September 30, revenues in the Americas grew 37% over the 1995
levels to $2.94 billion. Net sales from international operations in the third
quarter of 1996 increased 82% to $178.4 million from $98.1 million in the third
quarter of 1995, and increased 1.1% over the second quarter. For the first nine
months of 1996, international sales increased 95% to $544.7 million from $279.8
million in the first nine months of 1995. Revenues in the quarter from the
Company's European region were $115.5 million, an increase of approximately 18%
from the third quarter last year and a decrease of approximately 1% from the
second quarter of this year, which is generally the seasonally stronger quarter
in the region. Revenues for the first nine months of 1996 in the Company's
European region were $381.1 million, an increase of 36% over the comparable
period of 1995. The results of the Company's Asia Pacific region were $62.8
million in the quarter, an increase of 6.0% over the second quarter of 1996,
and totaled $163.7 million for the first nine months of this year.

         Sales of the Company's Solo line of portable products continued to
accelerate during the quarter. Portable products now account for slightly more
than 10% of total company revenues, an historical high. Shipments of Pentium Pro
products also accounted for approximately 10% of company revenue in the quarter,
a significant increase over the 3% rate in the second quarter.

         Gross Profit. Gross profit in the third quarter and first nine months
of 1996 increased 58% and 69% respectively, over the comparable periods of 1995.
As a percentage of sales, gross profit for the third quarter and first nine
months of 1996 increased to 19.2% and 19.0% from 16.4% and 16.1% for the
comparable periods of 1995.

         The improvement in gross profit during 1996 was achieved, despite
continual competitive pressure on PC prices, principally due to improvements in
meeting product sales mix forecasts associated with the introduction of new
products, a decrease in Direct Random Access Memory (DRAM) prices, and decreases
in aggregate royalty costs per unit. Margins in the third quarter as a percent
to sales increased to 19.2% from 18.5% in the second quarter generally due to
the timing of component cost decreases being passed on to customers through
price decreases.

         Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses for the third quarter and first nine months of
1996 increased approximately 69% and 87%, respectively, over the comparable
periods of 1995. As a percentage of sales, in the third quarter and first nine
months of 1996, these expenses increased to approximately 11.9% and 12.4%,
respectively, from 9.5% in the comparable periods of 1995. Significant factors
contributing to those increases were higher personnel costs, additional overhead
expenses associated with the Japanese and Australian operations, and additional
marketing programs.

         Personnel-related costs increased faster than the growth of sales in
the third quarter and first nine months of 1996 over the comparable periods of
1995 as a result of increased expenditures to expand customer support capacity
and general building of the Company's internal infrastructure and systems. The
Company expects to continue to make the necessary expenditures and
infrastructure investments to manage the growth of the Company.

         The Company began operations in Japan and Australia in the third
quarter of 1995. Expenses have been incurred in these operations at a rate
intended to generate and support higher levels of revenue. As a result, SG&A
expenses have continued to be a greater percentage of net sales than in the
Americas operations.

         Marketing expenses increased as a percentage of sales in the third
quarter and first nine months of 1996 compared to the third quarter and first
nine months of 1995. The increase results from increased marketing efforts
directed at targeted family and major account markets, marketing efforts to
support international expansion and a national consumer-oriented television
advertising campaign which began in the fourth quarter of 1995.

         SG&A in the third quarter of 1996 increased to $143.2 million from
$140.1 million in the second quarter of 1996. The increase is primarily
attributable to staff cost decreases in the quarter being more than offset by
increases in depreciation, bad debts, freight and marketing expenses. As a
percent to sales, SG&A decreased to 11.9% in the third quarter from 12.3% in the
second quarter of 1996. The decrease as a percent to sales reflects seasonal
sales growth and increasing leverage of the various systems and infrastructure
investments made over the past year.

         Operating Income. Due to the factors discussed above, operating income
in the third quarter of 1996 increased by 44% to $87.8 million from $61.0
million in the third quarter of 1995. Operating income for the nine months ended
September 30, 1996 increased 43% to $229.1 million from $160.4 million in the
first nine months of 1995. As a percentage of sales, operating income for the
quarter increased to 7.3% from 6.9% in the third quarter of 1995, and for the
nine month period, operating income of 6.6% was essentially the same as the
comparable period in 1995.

         Other Income, Net. Other income, net includes other income net of
expenses, such as interest income and expense, discounts on trade payables,
lease financing commissions, referral fees for on-line services and foreign
exchange transaction gains and losses. Other income, net increased to $6.1
million in the third quarter of 1996 from $3.4 million in the third quarter of
1995. For the nine months ended September 30, 1996, Other income, net increased
to $19.1 million from $12.6 million during the first nine months of 1995. The
principal cause of these increases was the generation of additional interest
income as a result of the availability of additional cash and marketable
securities compared to 1995.

         Income Taxes. The Company's effective tax rate increased to 35.3% for
the three months ended September 30, bringing the tax rate for the nine month
period to 34.5% from the 34.0% effective tax rate recorded in the first two
quarters of 1996. The increase in the tax rate reflects shifts in the geographic
distribution of the earnings of the company.

LIQUIDITY AND CAPITAL RESOURCES

         The Company has financed its operating and capital expenditure
requirements to date principally through cash flow from its operations. At
September 30, 1996 the Company had cash and cash equivalents of $401.1 million,
and an unsecured committed credit facility with certain banks of $225 million,
consisting of a revolving line of credit facility and a sub-facility for letters
of credit. At September 30, 1996, no amounts were outstanding under the
revolving line of credit. Approximately $2.5 million was committed to support
outstanding standby letters of credit. Management believes the Company's current
sources of working capital, including amounts available under existing credit
facilities, will provide adequate flexibility for the Company's financial needs
for the foreseeable future.

         The Company generated $338.1 million of cash from operations during the
nine months ended September 30, 1996, including $218.1 million of net income
adjusted for non-cash charges. Working capital management has limited inventory
and accounts receivable growth to only $11.5 million through the first nine
months of 1996, while increases in accounts payable, income taxes payable and
other liabilities generated an additional $128.2 million in cash. The increase
in accounts payable and other liabilities has resulted from overall growth of
the business and improved management of vendor payment terms. The Company used
approximately $106.9 million in cash for investing activities, principally as a
result of the Company's continued investment in facilities and systems. The
Company used approximately $.5 million in cash from financing activities during
the nine months ended September 30, 1996, principally from the repayment of a
term note and scheduled payments on long-term obligations, net of proceeds from
short-term borrowings.

         At September 30, 1996 the Company had long-term indebtedness of
approximately $21.3 million, inclusive of capital lease obligations, to various
parties. These obligations relate primarily to the Company's expansion of
international operations and its investments in equipment and facilities.
Borrowings, exclusive of capital lease obligations, bear fixed and variable
rates of interest currently ranging from interest free (for certain incentive
funds from the Industrial Development Authority of the City of Hampton,
Virginia) to 4.9% and have varying maturities through 1998. The Company's
capital lease obligations relate principally to its computer and telephone
system equipment.

         The Company anticipates that it will retain all earnings in the
foreseeable future for development of its business and will not distribute
earnings to its stockholders as dividends.

FACTORS THAT MAY AFFECT FUTURE RESULTS

         This Report includes forward-looking statements based on current
management expectations. Factors that could cause future results to differ from
these expectations include the following: general economic conditions; growth in
the personal computer industry; competitive factors and pricing pressures;
component supply shortages; and inventory risks due to shifts in market demand.
These and additional factors are described in further detail below. Because of
all the possible factors affecting the Company's operating results, past
financial performance should not be considered a reliable indicator of future
performance.

         Potential for Fluctuating Operating Results; Seasonality. Historically,
the PC industry has been subject to seasonality (such as third and fourth
quarter back-to-school and holiday sales) and to significant quarterly and
annual fluctuations in operating results. The Company's operating results are
also subject to fluctuations resulting from a wide variety of factors affecting
the Company and its competitors, including new product developments or
introductions, availability of components, changes in product mix and pricing,
product reviews and media coverage. The Company's business is also sensitive to
the spending patterns of its customers, which in turn are subject to prevailing
economic conditions.

         Management of Growth. From the Company's inception, its sales have
grown rapidly. Although the Company attempts to forecast growth accurately, no
assurance can be given that the Company will do so. The Company has experienced,
and may continue to experience, problems with respect to the size of its work
force and production facilities and the adequacy of its management information
and order systems, purchasing and inventory controls, and the forecasting of
component part needs. These problems can result in high backlog of product
orders, delays in customer support response times and increased expense levels.
There can be no assurance that the Company will be able to anticipate and to
provide timely and sufficient resources to maintain the levels of product
delivery and customer support that it has provided in the past or that such
maintenance will not result in a significant increase in personnel and other
expenses. A decline in the quality of the Company's customer support or delays
in the delivery of the Company's products could materially and adversely affect
the Company's business, consolidated financial position, results of operations
or cash flows. Moreover, there can be no assurance that the Company's production
facilities or management information systems will successfully meet its future
requirements.

         Reliance On Key Suppliers. Although the Company designs and contracts
for the manufacture of components according to the Company's specifications, the
Company does not itself manufacture any components used in its PCs. The Company
requires a high volume of quality components for the manufacture of its
products. Although the Company attempts to use parts and components available
from, and cross-compatible between, multiple suppliers, the Company considers
single-source supplier relationships to be advantageous in some circumstances.
For example, some components are currently available only from single-source
suppliers, including certain microprocessors supplied by Intel Corporation.
However, the Company does not have a long-term contract with Intel or most of
its other suppliers. In addition, the computer industry periodically experiences
shortages of certain components, such as memory, CD-ROM drives or video cards.
An industry shortage or other supply constraint of any key component could
affect the Company's ability to deliver products on schedule or to realize
expected gross margins.

         Highly Competitive Industry. In recent years the Company and many of
its competitors regularly have lowered prices, and the Company expects these
pricing pressures to continue. If these pricing pressures are not mitigated by
cost reductions or changes in product mix, the Company's profits could be
substantially reduced. The Company competes with other PC direct marketers, and
it also competes directly and indirectly with PC manufacturers that market their
products in distribution channels in which the Company generally has not
participated. Some of these competitors have significantly greater financial,
marketing, manufacturing or technological resources than the Company and,
consequently, may offer lower PC prices than the Company.

         Short Product Life Cycles. The PC industry is characterized by short
product life cycles resulting from rapid changes in technology and consumer
preferences and declining product prices. There can be no assurance that new
products or features offered by the Company will be successful, that the
introduction of new products or features by the Company or its competitors will
not materially and adversely affect the sale of the Company's existing products
or will not result in reserves or write-downs associated with excess inventory,
or that the Company will be able to adapt to future changes in the PC industry.
The Company's in-house engineering personnel work closely with PC component
suppliers and other technology developers to evaluate the latest developments in
PC-related technology. There can be no assurance that the Company will continue
to have access to new technology or will be successful in incorporating such new
technology in its products or features in a timely manner.

         Expansion into International Markets. There can be no assurance that
the Company's expansion into international markets will be successful. In
addition to the challenges to the Company of managing potential growth of its
international operations, international expansion involves additional business
risks such as foreign currency fluctuation, government regulation, liability for
foreign taxes and more complex product sales, delivery and support logistics.
Failure of the Company to achieve or maintain successful international
operations could materially and adversely affect the Company's business,
consolidated financial position, results of operations or cash flows.

         Dependence on Key Personnel. The Company's success depends largely on
the efforts and abilities of certain key management employees, particularly
those of Theodore W. ("Ted") Waitt, Chairman and Chief Executive Officer and a
founder of the Company. The Company has not entered into an employment agreement
with Ted Waitt. The loss of Ted Waitt's services could materially and adversely
affect the Company. The success of the Company will also be dependent, in part,
on the ability to attract and retain additional key management personnel. There
is competition for such personnel in the computer industry, and an inability to
attract and retain sufficient additional key employees could also have a
material adverse effect on the Company.

         Potential Liability for Sales, Use or Income Taxes. The Company is
party to agreements with numerous state tax authorities pursuant to which it
collects and remits applicable sales or use taxes in such states. The Company
entered into these agreements in response to inquiries of taxing authorities in
those states concerning alleged Company contacts with such states and whether
such alleged contacts required the collection of sales and use taxes from
customers and/or the payment of income tax in those states. These agreements
generally limit the liability of the Company for non-collection of sales taxes
prior to such agreements' effective dates and limit the duration of the
Company's responsibility to collect such taxes to the next several years. These
agreements do not address income taxes. Taxing authorities in other states have
made similar inquiries or asserted similar claims concerning the Company's
alleged contacts with those states and in the future could make specific
assessments. The Company has not collected or remitted any sales or use taxes in
such states for any prior period, nor has it established significant reserves
for the payment of such taxes. There can be no assurance that the amount of any
sales or use taxes the Company might ultimately be required to pay for prior
periods would not materially and adversely affect the Company's business,
consolidated financial position, results of operations or cash flows.

         The Company currently pays state income taxes in Kansas, Kentucky,
Missouri, Virginia, and for 1995 only, in Iowa. The Company has not paid income
taxes in other states, nor has it established significant reserves for the
payment of such taxes. There can be no assurance that the amount of any income
tax the Company might ultimately be required to pay for prior periods would not
materially and adversely affect the Company's business, consolidated financial
position, results of operations or cash flows. The Company may also be liable
for income taxes incurred by the Original Stockholders resulting from the
Company's operations during the time when the Company elected to be treated as
an S Corporation for federal income tax purposes.

         Infringement of Intellectual Property Rights. The Company currently has
several infringement claims pending against it. No assurance can be made that
any such claims, singularly or in the aggregate, would not materially and
adversely affect the Company's business, consolidated financial position,
results of operations or cash flows. The Company evaluates all such claims
against it, and, when appropriate, seeks a license to use the protected
technology in its products. If the Company or its suppliers were unable to
obtain licenses necessary to use the protected technology in the Company's
products on commercially reasonable terms, the Company may be forced to market
products without certain technological features. The Company could also incur
substantial costs to redesign its products around other parties' protected
technology or to defend patent or copyright infringement actions against the
Company. If any of the Company's products were found to infringe protected
technology, the Company could also be enjoined from further use of that
technology in its products and could be required to pay damages. The Company's
inability to obtain licenses necessary to use certain technology, its inability
to obtain such licenses on competitive terms or a finding of infringement
against the Company could materially and adversely affect the Company's
business, consolidated financial position, results of operations or cash flows.

         Government Regulation. The Company's PCs must meet standards
established by the Federal Communications Commission ("FCC"), and similar
agencies in foreign countries, for radio frequency emissions and must receive
appropriate certification prior to being marketed. In addition, the Company's
advertising, shipping, exporting and other operations are subject to regulations
of the Federal Trade Commission and the Departments of Commerce and State in the
U.S., states' attorney general's offices, and similar state agencies and
agencies in foreign jurisdictions. Even inadvertent or sporadic failure to
comply with government regulations can result in fines, penalties and forced
rebates levied against the Company which could materially and adversely affect
the Company's business, consolidated financial position, results of operations
or cash flows. A delay or inability to obtain FCC certification, for example,
could delay or prevent the Company from introducing new products or features.
Failure to comply with export regulations could result in special restrictions
on the Company's ability to ship products overseas. While the Company has not
been subject to any significant enforcement penalties to date, and while the
Company continues to use its best efforts to comply with all applicable U.S. and
foreign governmental regulations, the Company has matters pending before several
regulatory agencies and, accordingly, there can be no assurance that enforcement
penalties will not be levied against the Company in the future.


                              II. OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

         In addition to certain actions pending against the Company as disclosed
in the Company's Quarterly Report on Form 10Q for the quarterly period ending
June 30, 1996, two consumer class actions have recently been filed against the
Company challenging its advertising and marketing practices. On August 19, 1996,
Sheller, Ludwig & Badey v. Gateway 2000, Inc. was filed in the Philadelphia
County Court of Common Pleas alleging misstatements regarding the upgradeability
of certain 486 computer systems and the longevity of certain computer monitors,
seeking damages under state contract and tort theories. Also, on August 19,
1996, Carol Levy v. Gateway 2000, Inc. and Does 1-50 was filed in San Francisco
County Superior Court. The plaintiff alleges misstatements regarding battery
life in certain portable computers in violation of state consumer protection
laws. The Company intends to contest vigorously the allegations raised in the
two complaints. As these actions are at a preliminary stage and no discovery has
been conducted in either of them, it is too early to evaluate the likelihood of
the plaintiffs' success on the merits of their claims or the amount of any loss
that may be realized in the event of an unfavorable outcome in either of these
actions. There can be no assurance that an adverse determination in any of the
matters pending against the Company would not have a material adverse effect on
the Company's financial condition or results of operations or cash flows.

ITEM 2.  CHANGES IN SECURITIES

         None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.

ITEM 5.  OTHER INFORMATION

         None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

    (A)  EXHIBITS:

    EXHIBIT                       DESCRIPTION OF EXHIBITS
      NO.
      ---

      10.1      Amendment No. 3 to the License Agreement dated May 1, 1995 
                between Gateway 2000, Inc. and Microsoft Corporation. 
                [Confidential treatment requested as to certain portions which
                are indicated by a legend and filed separately with the
                Securities and Exchange Commission with an Application for
                Confidential Treatment pursuant to Rule 24b-2 promulgated under
                the Securities Exchange Act of 1934, as amended.]

      10.2      Amendment No. 4 to the License Agreement dated May 1, 1995 
                between Gateway 2000, Inc. and Microsoft Corporation.
                [Confidential treatment requested as to certain portions which
                are indicated by a legend and filed separately with the
                Securities and Exchange Commission with an Application for
                Confidential Treatment pursuant to Rule 24b-2 promulgated under
                the Securities Exchange Act of 1934, as amended.]

      10.3      Amendment No. 5 to the License Agreement dated May 1, 1995 
                between Gateway 2000, Inc. and Microsoft Corporation.
                [Confidential treatment requested as to certain portions which
                are indicated by a legend and filed separately with the
                Securities and Exchange Commission with an Application for
                Confidential Treatment pursuant to Rule 24b-2 promulgated under
                the Securities Exchange Act of 1934, as amended.]

      10.4      Amendment No. 4 to the License Agreement dated June 1, 1994
                between Gateway 2000, Inc. and Microsoft Corporation.
                [Confidential treatment requested as to certain portions
                which are indicated by a legend and filed separately with the
                Securities and Exchange Commission with an Application for
                Confidential Treatment pursuant to Rule 24b-2 promulgated under
                the Securities Exchange Act of 1934, as amended.]

      27.1      Financial Data Schedule

     (B)  REPORTS ON FORM 8-K:

         None.



                                    SIGNATURE

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                              GATEWAY 2000, INC.


Date:  November 13, 1996      By:  /s/ David J. McKittrick
                                  ----------------------------------------------
                                  David J. McKittrick
                                  Senior Vice President, Chief Financial Officer
                                  and Treasurer (authorized officer and chief
                                  accounting officer)


The following trademarks of other companies appear in this Report: Intel,
Microsoft, Windows 95(R) and Pentium. These and any other product or brand
names contained herein are trademarks or registered trademarks of their
respective owners.