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Analyst reports: Gateway earnings bode well for PC market

After the computer maker meets earnings expectations, a flurry of analysts release optimistic research notes praising the company and suggesting that the state of the PC market may not be so bad after all.

After Gateway met Wall Street's earnings expectations Thursday, a flurry of analysts released optimistic research notes praising the company and suggesting that the state of the PC market may not be so bad after all.

"The results should remind investors that the PC market is good, not great and not a disaster!" wrote Morgan Stanley Dean Witter analyst Gillian Munson.

The reports followed Gateway's positive earnings announcement Thursday. The computer maker said it earned $152.6 million, or 46 cents per share, on revenue of $2.53 billion, meeting the average projection of analysts polled by First Call/Thomson Financial. The company also said that consumer sales for the third quarter grew by 27 percent from the same period last year.

Shares of Gateway rose $6.82, or about 15 percent, to $50.45.

Analysts praised Gateway for meeting projections in a market where other leaders in the industry have been rocked by profit warnings, including Intel, Apple Computer and Dell Computer. "In light of the many prereleases, (Gateway's) performance is impressive," wrote Salomon Smith Barney analyst Don Young.

Analysts at ING Barings, Deutsche Banc Alex Brown, Prudential Securities and Credit Suisse First Boston reiterated "strong buy" ratings on Gateway. Chase Hambrecht & Quist raised its estimates to "strong buy" from "buy," and Merrill Lynch raised its estimates to near-term "buy" from near-term "accumulate."

Several analysts took Gateway's positive results as a hopeful sign that conditions are not as bad in the PC market as the ominous profit warnings from Dell, Apple and Intel suggested.

Banc of America Securities analyst Kurtis King called Gateway's report "a much-needed positive data point on the PC space."

Salomon Smith Barney's Young wrote: "PC demand hasn't really fallen off a cliff and is indeed sufficient for well-executing companies to deliver expectations."

He added that he will be looking to Compaq Computer's upcoming earnings to gauge the overall health of the PC industry.

"If Compaq's Q3 results come in as expected, it would clearly imply that Dell's issues are caused by a narrowing relative competitive advantage (our belief) rather than deteriorating demand," Young wrote. "We continue to believe commercial PC demand is improving, albeit at a slower pace."

The top five most-covered companies Friday were WebMD (HLTH) with eight reports, and Gateway (GTW), Juniper Networks (JNPR), PMC-Sierra (PMCS) and Powerwave Technologies (PWAV), each with six reports.