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Gateway meets 3Q expectations

Gateway (NYSE: GTW) reported a profit of 46 cents a share in its third quarter Thursday, in line with First Call's consensus estimate.

Earnings of $152.6 million were up 35 percent over last year's. Revenue for the quarter was $2.53 billion, up 16 percent from year-ago levels, and higher than the company's earlier guidance to analysts.

Shares of Gateway shot up to 47.5 in afterhours activity on the Island electronic communications network, following the release of quarterly results. Gateway stock closed down 0.99 to 43.63 in Thursday's regular trading, prior to the earnings report.

The PC maker cited strong growth in sales to consumers and small businesses, coupled with continued growth in Europe.

Gateway's push to derive more sales from areas outside of pure PC hardware helps insulate the company from issues that have plagued other PC-related companies, executives said, during an afternoon conference call with analysts.

"The sky is not falling, the market is still solid," CFO John Todd said. "We think that growth in the profitable segments of this industry is still quite healthy."

Gateway recorded growth in all its business units during the quarter, with consumer leading the way with a 27 percent revenue increase.

Gateway's overall gross margin for the quarter was 23.1 percent. Non-PC hardware, software and services generated more than 50 percent of income in the third quarter.

"I hope we stand out as a great story in an environment that's transitioning," CEO Jeff Weitzen told analysts.

Selling, general & administrative expenses were $364.5 million, down slightly as a percentage of sales in the third quarter versus a year ago. Gross margins were 23.1 percent of sales, up 1 percent over last year.

Gateway officials predicted a strong selling season for the historically strong fourth quarter as the company continues its plan to move "beyond the box". Gateway also plans to offer its first Internet appliances, co-developed with America Online (NYSE: AOL). The first device, a kitchen countertop appliance, will go on sale for the December holidays, the company said.

-- Sergio G. Non contributed to this report.