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Gateway revenue misses targets

But tax gain and Microsoft settlement payment help return PC maker to profit in the fourth quarter.

Gateway, the No. 3 U.S. personal computer maker, returned to profit in the fourth quarter, but its shares fell 6 percent on Thursday after it reported revenue that fell short of analysts' estimates.

Revenue slipped to $1.02 billion from $1.12 billion, missing Wall Street's average forecast of $1.05 billion, as compiled by Reuters Estimates. Earnings per share of 2 cents matched the average of their forecasts.

Fourth-quarter net income was $8.8 million, compared with a net loss of $20.9 million, or 5 cents per share, a year earlier, the company said in a preliminary earnings report.

Gateway benefited from an $11.8 million net tax gain in the quarter. It also received $8.6 million from a legal settlement with software maker Microsoft.

Gateway, based in Irvine, California, said fourth-quarter profitability was hurt by supply constraints, but it forecast "improved financial performance" in 2007.

Consumers delayed PC purchases until after the January launch of Microsoft's Windows Vista operating system, Chief Executive Ed Coleman said.

"We essentially got through this pre-Vista period, and we're in a position to benefit from Vista" in the first quarter, Coleman said in an interview.

Gateway shipped 5 percent fewer units than in the year-earlier period, giving it an estimated 6.6 percent share of a U.S. market dominated by rivals Hewlett-Packard and Dell.

The company characterized the results as preliminary, as it was still completing its year-end balance sheet. Gateway said it is "evaluating the effectiveness of its internal controls" related to "inventory receipt discrepancies" that may result in balance sheet adjustments to inventory and liability-related accounts.

Gateway's gross profit margin sank to 5.2 percent in the fourth quarter from 6.2 percent a year earlier, as profitability declined in the company's retail business.

Gateway is expanding in retail sales of its computers, a business that typically has lower profit margins than Gateway's professional and direct-sales segments.

Shares of Gateway fell to $2.02 in extended trading following the earnings report after closing up 2.4 percent at $2.15 in regular-session New York Stock Exchange trading.