Gateway stumbles in Q2

Summary:Shares of PC maker Gateway fell 4 to 54 ¾ on a volume of 13.4 million shares after the company stumbled in its second quarter, reporting a profit of $60.

Shares of PC maker Gateway fell 4 to 54 ¾ on a volume of 13.4 million shares after the company stumbled in its second quarter, reporting a profit of $60.7m (£37m), or 38 cents a share, on sales of $1.62bn (£0.98m). First Call consensus expected it to earn 43 cents a share in the quarter.

The $1.62bn (34m) in sales represents a 16 percent improvement versus the year-ago quarter when it earned $56m (£34.14m), or 36 cents a share, on sales of $1.39bn (£0.84bn). In the quarter, it shipped 736,000 PCs, 33 percent above the 554,000 units shipped in the second quarter of 1997.

Earlier, Lehman Brothers' Kimberly Alexy, who has a 12-month share price target at $60, cut her opinion to "neutral" from "buy". Donald Young at Prudential Securities downgraded the stock to "hold" from "buy". Gateway was hindered by falling prices of PCs as the industry grapples for the low-cost PC market as demand in the Americas and Asia dries up. Company officials said average unit prices declined 12.5 percent to $2,200 (£1,340) in the quarter compared to the prior year's quarter. On a sequential basis, AUP's declined 2.4 percent for the quarter primarily due to mix changes within the desktop product line. However, a large sales volume could partially offset the drop in average selling price, said Ashok Kumar, analyst at Piper Jaffray, who maintains his "neutral" rating. For the third quarter, Gateway's guidance for a 50 cents a share profit could lead to lowering of estimates, said Kumar, who expects a 55-cent gain for the upcoming quarter. "After a seasonally slow April and May, our marketing programs kicked in, driving a dramatic increase in volume in June and creating good momentum for the second half of the year," said chief executive Ted Waitt in a statement.

Still, it's a disappointment, especially for investors who have bid the stock up from a bargain price of 25 1/16 in November to a high of 68 ¾ earlier this month.

Last quarter, Gateway earned $75m (£46m), or 48 cents a share, on sales of $1.7bn (£1.03bn). Twelve of the 20 institutional investment firms following the stock maintain a "buy" or "strong buy" recommendation.

Analysts expect earnings of $2.25 a share this year and $2.89 a share in fiscal 1999.

Topics: Hardware

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