ATI's ( ATYT) second-quarter earnings fell 40% from a year ago, as margins contracted following a repositioning in its desktop division. Excluding items, ATI's earnings were well ahead of estimates and the company issued solid guidance for the current period. ATI earned $34.1 million, or 3 cents a share, in the quarter, compared with $57.2 million, or 22 cents a share, a year ago. Adjusted for charges, the company earned $44.8 million, or 17 cents a share, in the most recent quarter. On that basis, analysts had expected earnings of 11 cents a share, according to Thomson First Call. Second-quarter revenue rose 11% from a year ago to $672 million, easily surpassing the Wall Street consensus of $648.4 million. ATI said its PC segment accounted for 80% of revenue in the quarter, while its consumer segment made up the rest. Within the PC segment, revenue fell 2% to $539.9 million, which the company attributed to a lower volume of desktop discrete products to add-in-board and retail customers. Sales of notebook discrete products also fell due to increased use of integrated graphics in that platform. The company's overall gross margin was 28.2% in the second quarter, compared with 34.2% a year ago and 28.7% in the first quarter of fiscal 2006. "Gross margin percentage for the quarter and year-to-date reflect a decline in desktop discrete margins resulting from a repositioning and write-down of certain products in the fourth quarter of fiscal 2005," ATI said. "As a result, certain products continued to be sold in the first half of fiscal 2006 at significantly reduced margins. "In addition, gross margin was also impacted by strong sales of lower-margin integrated chipsets, which comprised approximately one-quarter of consolidated revenues in the second quarter and first half of fiscal 2006, as compared with about 5% for the same periods last year," the company said. "A larger proportion of higher-margin Consumer revenue helped to offset some of the overall gross margin decline." For the third quarter, ATI pegged revenue at $640 million to $680 million, and gross margin at about 30%. Analysts had been forecasting revenue of $643.8 million in the quarter. The stock jumped $1.63, or 10.4%, to $17.36 a share in premarket trading.