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Gateway tiptoes past 2Q forecasts

Gateway Inc. (Nasdaq: GTW) topped analysts' estimates by a penny a share in its second quarter Thursday, raking in $89 million, or 56 cents a share, on sales of $1.9 billion.

First Call consensus pegged the PC maker for a profit of 55 cents a share in the quarter.

Its shares closed off 2 3/4 to 63 ahead of the earnings report.

The $1.9 billion in sales represents an 18 percent jump versus the year-ago quarter when it made $60.7 million, or 38 cents a share, on sales of $1.6 billion.

In the quarter, Gateway shipped more than 1 million units, a 36 percent increase from the year-ago quarter.

Gateway CEO Ted Waitt credited the robust earnings report to strong demand from consumer PC market, strong demand in Asia and improved sales from its non-PC units.

"We continue to focus like a laser on executing our strategy of moving beyond the box, and it paid off with a record quarter in what's typically the industry's slowest period," Waitt said in a prepared release. "Non-PC income is now well over 10 percent, which is where we said we'd be by year-end. Clearly, we're well ahead of our plan to generate a richer, more diverse revenue stream, while our core systems business has never been healthier."

Gateway's consumer Internet service provider business, Gateway.net, saw its subscriber base double in the quarter to more than 400,000 users.

U.S. consumer sales improved 25 percent and 46 percent on a unit basis.

In Asia, Gateway's unit volume stormed up 77 percent versus the year-ago quarter and 58 percent on a revenue basis. European sales improved only slightly, mainly due to strong consumer sales in the United Kingdom.

Average unit prices declined 13 percent from a year ago to $1,905 and declined less than 2 percent from the first quarter. However, gross profit margins for the quarter were 22 percent, up from 20.6 percent last year and up 60 basis points from the first quarter of 1999.

"As we move into our strongest selling season of the year, we're poised to continue delivering consistent earnings results, better-than-industry growth rates and a more diverse and profitable revenue stream," said CFO John Todd in a prepared release.

Last quarter, Gateway pocketed $99.5 million, or 62 cents a share, on sales of $2.1 billion.

The stock peaked at 84 1/2 in February after falling to a 52-week low of 36 1/8 in October.

Sixteen of the 22 analysts following the stock maintain either a "buy" or "strong buy" recommendation.

First Call consensus expects Gateway to earn $2.80 a share in the fiscal year.