Gateway: What slowdown?

Strong consumer PC demand helped Gateway Inc. push past analysts' estimates in its first quarter Thursday as the PC vendor earned $99.5m (£60.7m), or 62 cents a share, on sales of $2.1bn.

First Call consensus expected Gateway to earn 60 cents a share in the quarter.

The stock closed up 3 15/16 to 69 15/16 ahead of the earnings report. Company officials said "the consumer PC business has never been better," resulting in a 61 percent jump in unit growth in the U.S. consumer market. The $2.1bn in sales represents a 22 percent jump compared to the year-ago quarter when it earned $75.8m, or 48 cents a share, on sales of $1.72bn. ``The strategy we've been executing for the past year is paying off with real, noticeable momentum in the consumer marketplace,'' said CEO Ted Waitt in a prepared release. "Our consumer business has never been stronger, and now we're positioned to expand that success into the small and mid-sized business arena."

The weakness some analysts and companies predicted in the PC market apparently doesn't apply to Gateway. Following IBM's spectacular earnings report Wednesday, it seems that Compaq's woes may be an isolated case. In the quarter Gateway shipped more than 1 million PCs, a 42 percent increase versus the year-ago quarter. While sales to the U.S. consumer market stormed up 62 percent, strong sales in the Asia Pacific region contributed greatly to its first-quarter success.

Total unit volume increased 96 percent over the same period last year and sales improved 65 percent. Desktop unit growth was up 42 percent versus the first quarter last year and its portable unit volume jumped 47 percent. Average selling prices, however, declined 3 percent to $1,938 from $2,003 in the fourth quarter and down 14 percent from the average price of $2.253 in the year-ago quarter.

Despite the decline in average selling prices, Gateway managed to improve its profit margins from 19.5 percent in the year-ago quarter to 21.4 percent this time around. Profit margins in the fourth quarter were 21.6 percent. "There's no denying that the PC business continues to be very competitive, and not just on pricing," Waitt said in the release. "But, as we've demonstrated in the first quarter, our unique route to market is built to succeed in this environment."

Gateway shares moved up to a 52-week high of 84 ½ in February after falling to a low of 36 1/8 in October. Eighteen of the 24 analysts following the stock maintain either a "buy" or "strong buy" recommendation.

First Call consensus expects Gateway to earn $2.79 a share in the fiscal year.