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Can Gateway appease antsy industry watchers?

The company's earnings could give the Street some needed relief, but even an upbeat report from Gateway may not be the industry bellwether some are looking for.

    Gateway could well give Wall Street some needed relief when it reports earnings after the close of trading Thursday. However, even an upbeat report from the company may not be the best barometer of the PC industry.

    Gateway
    Stock price from October 1999 to present.  
     Source: Prophet Finance
    In recent weeks, chip giant Intel and PC makers Dell Computer and Apple Computer have warned that financial results will not meet expectations. Gateway has not made any similar announcement.

    As recently as the middle of last month, Gateway said it was on track to meet Wall Street's expectations. On average, analysts are expecting the company to report earnings of 46 cents per share on sales of around $2.5 billion.

    But even though Gateway's results may please, there are several factors that make its situation different from those of other PC-related companies. Thus, Gateway doesn't necessarily reflect the health of the overall computer industry as clearly as other companies do.

    Intel and Dell warned of problems in the European marketplace, for example, but Gateway only gets about 7 percent to 8 percent of its sales from that continent. Also, Gateway is less dependent on sales to large businesses than Intel and Dell.

    At the same time, analysts are closely watching Gateway's government sales. "The biggest swing factor is U.S. government, which has been weak for Dell and others," Salomon Smith Barney analyst Richard Gardner wrote in a research note Thursday.

    Gateway also has been boosting its sales from products other than the PC, including items such as training, accessories and Internet access. That could help protect the company's earnings even in a tough PC environment, Morgan Stanley Dean Witter analyst Gillian Munson wrote in a research note.

    Analysts have been mixed on what to make of Gateway. Merrill Lynch analyst Steve Fortuna boosted his rating on the company Oct. 3 to "buy" from "accumulate," noting that he was confident the company would meet third-quarter expectations.

    "In our opinion the consensus Q3 revenue estimate of $2.5 billion is a virtual lock," Fortuna wrote in a research note, adding he expects Gateway to post earnings in line with the consensus estimate of 46 cents per share.

    However, Munson cut her rating on Gateway this week to "outperform" from "strong buy," saying there is "limited upside for consumer PC stocks."

    "We continue to see the PC market as good, not great," Munson wrote in her research note.

    Industry watchers will also be paying close attention to Gateway's conference call to see whether the company changes its outlook or tone regarding the fourth quarter or the coming year.