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Gateway's earnings rise again

The computer maker posts better-than-expected earnings today, driven by surges in the United States and Asia.

PC maker Gateway beat analyst estimates today by posting stronger than expected earnings and sales growth that is close to triple the overall industry growth, a surprise driven by surges in the United States and Asia.

Gateway posted earnings of 62 cents per share or $99.6 million for the first quarter of 1999, compared to 48 cents per share for the same period last year. Wall Street analysts polled by First Call predicted earnings of 60 cents per share. Net income increased 31 percent, from $75.9 million last year.

PC shipments grew by 42 percent compared to the same quarter a year ago, a number aided by a 96 percent growth rate in Asia. The industry as a whole is growing at approximately 15 percent.

The company said the quarter, which was described as "one of our best ever," by president Jeff Weitzen, was characterized by robust consumer sales and stable profit margins.

Still, the generally rosy outlook was darkened by what has become the bane of the PC industry in the last few years: rapidly declining average selling prices. Gateway shipped more than a million machines for a 42 percent surge in the number of boxes shipped, but revenue only went up 22 percent to $2.1 billion.

In Gateway's case, average unit prices declined 3 percent to $1,938 from $2,003 for the same period last year, although Gateway's prices remain above the industry average. Gateway sells directly to consumers, which appeals more to buyers of high-end equipment than entry-level sub-$600 buyers. The company noted that PCs running on Intel's new high-end Pentium III accounted for one-quarter of all U.S. desktop sales.

Like other PC makers, Gateway is in the process of modifying its strategy to decrease its revenue dependency on hardware alone, and expand alternative revenue streams like Internet services and online stores. This quarter, Gateway augmented its plan by purchasing an equity stake in online hardware store NECX. The companies together will launch SpotShop, an online peripherals store.

"Gateway and its shareholders are reaping the benefits of a focused effort to expand our client relationship beyond the box," said company chairman Ted Waitt, in a statement. "Our consumer business has never been stronger."

The company attributed the surge to growth in the United States, where unit volume was up by 42 percent, and recovery in Asia, where volume increased 96 percent, compared to the same period last year. Gateway's notebook shipments were up 47 percent, compared to the same period last year, with revenues up 23 percent.

The company's profit margins remained stable: 21.4 percent for the first quarter, up from 19.5 percent for the same time last year, and slightly lower than last quarter's 21.6 percent profits.