Strong Gateway tops estimates

The direct-sales PC maker tops analysts' earnings estimates for its third quarter on the strength of record shipments.

3 min read
Direct-sales PC maker Gateway today topped analysts' earnings estimates for its third quarter on the strength of record shipments.

The No. 4 personal computer maker posted net income of $80.6 million or 51 cents per share, compared with a net loss of $107.1 million or 68 cents a share reported for the like quarter a year ago.

Financial analysts predicted that the company would post profits of 47 cents a share, according to First Call.

Quarterly revenue rose to $1.82 billion, from $1.5 billion posted for the same period last year.

"Our strong third-quarter unit growth was driven by demand for our YourWare program, coupled with back-to-school purchases and our Gateway Country stores," chief executive Ted Waitt said in a statement.

Gateway shipped a record 887,000 PCs during the third quarter ended September 30, with sales strongest in the Americas region and in Asia. Executives said unit shipments were up 74 percent year-over-year in the Asia-Pacific region, despite the financial turmoil in the area. European Sales, however, were flat.

Analysts expected stable pricing and seasonal factors to affect Gateway's performance.

"While component costs are no longer in a free-fall, the declines continue at a faster rate than price reductions," Piper Jaffray analyst Ashok Kumar wrote in a report today.

Average unit prices fell 15 percent, to $2,046, compared with the year-ago quarter, the company said.

"The September quarter is a seasonally strong quarter for education and government sales," Kumar added.

The company's direct sales model has proven successful as other PC makers struggled with excess inventory throughout the summer months.

During the quarter, Gateway announced back-to-school price cuts, named Colorado home for its new development center, unveiled a PC-TV system, and showed success with its chain of retail stores.

Gateway added another 27 Gateway Country stores during the quarter, bringing its total to 85 stores.

The company's second-quarter results missed the mark by 6 cents a share. Stock in the company dipped more than 10 percent after analyst downgrades in July.

"While year-to-date the stock has outperformed the S&P 500 by 23 percent, it is down 30 percent from its highs in July," Kumar wrote.

Shares in the company closed nearly 6 percent higher today at 49.75. The stock has traded as high as 68.75 and as low as 25.0625 during the past 52 weeks.

Despite global economic uncertainty and falling unit prices, the company expects to continue growing in its fourth quarter. "We are entering the peak of the consumer buying season with excellent brand position, the right products, services, and a team that will continue to propel Gateway's success," Waitt said.

Meanwhile, Gateway announced two new servers today that are aimed at the departmental and mid-range server markets. Both the new ALR 8300 and ALR 8300R servers employ Intel's Pentium II Xeon 450 Mhz processors.

In other company news this week, Kenneth Stickevers was named vice president of brand management and Phil Kennett was named vice president of federal government sales. Stickevers has a history in the food industry, most recently working for The Pillsbury Company, and Kennett was most recently a general manager at Digital Equipment Corporation.