Gateway Posts Q2 Profit But Cuts Estimates

By Geoff Duncan August 15, 2005

After twice-delaying its quarterly earnings announcement, Gateway, Inc., the third-largest computer maker in the U.S., turned in its first GAAP (Generally Accepted Account Principles) quarterly profit in more than three years today, posting a $17.2 million profit, or $.05/share, on revenue of $873 million for its second fiscal quarter of 2005. This is the first GAAP profit for the company in 13 consecutive quarters, although the company says the quarter represents its fourth consecutive profitable quarter using non-GAAP accounting measures.

The company’s announcement was originally scheduled for late July, but was delayed because of accounting issues related to a $150 antitrust settlement with Microsoft Corporation; $15.1 million of Gateway’s quarterly revenue stems from that settlement.

Despite posting a quarterly profit, Gateway’s shares fell sharply Monday following the company’s earning announcement in which it reduced its earnings targets for the fiscal year from between 17 to 19 cents a share ($4 billion to $4.25 billion in sales) to between 13 and 15 cents a share ($3.9 billion to $4 billion). Gateway cited competition creating "gross margin pressure in all our major business units.” Non-computer products accounted for some 73 percent of the company’s profits for the quarter, although Gateway’s overall gross profit margin for the quarter was up to 10 percent, a slight increase from the previous quarter and more than five times better than the same quarter a year ago. A 10 percent margin is stronger than the 6.1 percent HP garnered in its second fiscal quarter and the 8.8 percent seen by Dell in its fiscal quarter ending in April 2005, but far behind the nearly 30 percent margin currently being enjoyed by Apple Computer.

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