Gateway's Direct Sales Drop 44 Percent

The Irvine, Calif.-based company also reported a smaller revenue decline of eight percent in its channel-facing professional sales units, in the first round of earnings overseen by new company CEO Ed Coleman.

Overall, Gateway reported third quarter revenue of $963 million, a decline from the $1.02 bilion for the year-ago period. Gateway also reported net income of $18.2 million, after a net tax benefit of $8.2 million, compared to $15.1 million for the same period a year earlier.

Gateway executives said the dropoff in its direct sales came from two primary areas: sales from an Internet Service Provider that had previously offered promotions with Gateway to boost subscriptions, but which had been cut as a result of the ISP now offering free service, and a decline of extended warranty revenue after the company switched to a third-party warranty insurer.

Gateway's Professional Sales unit, which ships to government and commercial accounts and which uses solution providers in a growing number of engagements, saw $263 million in revenue during the quarter. Gateway's Direct segment saw revenue of $75 million, and its retail group turned in sales of $626 million, the company said.

Despite the 44 percent decline in direct sales, Coleman, a former channel executive, said the company's business model would likely stay the course. It currently ships to retail outlets, through solution providers, and directly.

"The channel provides some opportunity for us, but I think we are predominantly a direct marketing organization and we will continue to be a direct marketing organization," Coleman said.

Research firms now say Gateway is the Number 3 U.S. PC maker, with six percent market share. The company said it shipped 1,174,600 PCs during the third quarter.