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Gateway Reports Q2 Results
Aug 4, 2006
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Gateway, Inc. reported results for its second quarter ended June 30, 2006. Revenue amounted to $919 million, compared with $1.1 billion in the first quarter of 2006 and $873 million a year earlier.

The company recorded a second quarter net loss of $7.7 million, or $0.02 per diluted share, compared with a net loss of $12.3 million, or $0.03 per diluted share in the prior quarter, and a net profit of $17.2 million, or $0.05 per share a year earlier.

The company sold 1,170,500 PC units in the second quarter, down 15 percent sequentially, and up 16 percent year-over-year. The increase in unit sales on a year-over-year basis is primarily due to U.S. market share gains. Based on preliminary IDC data, Gateway was the fastest growing PC company in the U.S. among the top five vendors on a year-over-year basis. Gateway was the third largest PC company in the U.S. with an estimated 6.5 percent market share in the second quarter, up from 6.0 percent a year ago.

Gross margin for the second quarter was 5.5 percent, compared with 7.3 percent in the prior quarter and 10.0 percent in the second quarter of 2005. The sequential decrease in gross margin is due to an increase in accrued warranty and royalty expenses associated with a change in management's estimate of reserve requirements in these categories, as well as execution issues in our Retail business. The year-over-year decline in gross margin is due to lower margins in professional and retail plus strong growth in the retail business, which increases the mix of lower margin business.

SG&A expense in the second quarter was $66.1 million, or 7.2 percent of revenue, down from $103.1 million in the prior quarter, and down from $84.9 million in the second quarter of 2005. The second quarter sequential decrease in SG&A was due to a $8.4 million reduction in sales tax reserves plus reduced marketing spend and other cost controls established during the second quarter. SG&A expense in the first quarter was high because it included a $14 million litigation settlement charge.

Gateway's second quarter results included a $14.2 million reduction in the company's sales tax reserves and liabilities associated with retail customer rebates offset by a $14.6 million increase in its legal settlement expenses plus warranty and royalty reserve increases due to a change in management's estimates for liabilities in these categories

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