Gateway Posts Mixed Results

A new focus on selling higher-priced PCs and cost-cutting pushed Gateway(GTW) back to profitability in the second quarter.

But the company's sales fell well short of expectations, sending the stock down 9% to $1.32 in midday trading Thursday.

Gateway said revenue of $841 million in the three months ended June 30 was down 8.5% year-over-year. Analysts polled by Thomson Financial expected Irivine, Calif.-based Gateway to post a modest uptick in sales during the second quarter, with the average estimate calling for revenue of $953 million.

The main culprits of the shortfall were Gateway's direct and corporate sales businesses, which reported year-on-year sales declines of 30% and 31%, respectively.

Gateway said production constraints at its Nashville facility crimped its sales and drove-up backlog in its corporate sales division to "significantly" higher levels than normal. The company's direct sales division, which sells PCs by phone and over the Internet, also suffered from reduced marketing efforts and declining revenue from Internet access subscriptions and extended warranties.

On the bright side, Gateway's retail division increased its sales 4% year-over-year and improved its gross margin to 5.6% from last year's 3.7%.

Gateway said the margin gains owed to a shift to selling more expensive PCs, as well as savings on component costs.

The company earned $1.9 million in the quarter, or 1 cent a share, vs. a loss of $7.7 million, or 2 cents a share, at this time a year ago.