Gateway Sales, Earnings Up

The San Diego-based company reported sales of $1.2 billion for the fourth quarter ended Dec. 31, compared with $1 billion for the same quarter a year earlier. The company's profit was $22.4 million, compared with $15.1 million for the year-ago period.

Its earnings amounted to 6 cents per share, compared with the Thomson First Call projection of 5 cents per share. However, after one-time gains, Gateway earned 4 cents per share.

"We continue to put in place the building blocks for a long-term growth strategy," said Wayne Inouye, Gateway's CEO. "We are disappointed by our inability to manage gross margins."

The company, which merged with retail PC maker eMachines in 2004, is still in the midst of a turnaround. Inouye said Gateway's direct operations were disappointing, but the company would make adjustments with marketing and advertising to "boost results." Inouye also said the company was committed to its commercial sales efforts, which include its channel operations.

"I believe a larger chunk of the market still resides [there]," Inouye said in a conference call with financial analysts. "It offers the largest potential for growth, so we're married to our strategy to continue our turnaround in [commercial sales]. It hasn't gone as quickly as we thought it would."

During the most recent quarter, Gateway executives said the company was particularly hurt by component shortages—but Inouye declined to specify which components. The company also said it expected to continue moving ahead with construction of a Gateway-dedicated, final assembly plant in the United States for PCs and servers—a facility that would help the company reduce costs and time to market.

Investor reaction to Gateway's quarterly results was initially negative. In after-hour trading, shares of Gateway dropped 18 cents to $2.78 per share.