Gateway, Inc. reported results for its third quarter ended Sept. 30, 2006. Revenue amounted to U.S. $963 million, up from $919 million in the second quarter of 2006 and compared to $1.019 billion a year earlier. Operating income equaled $7.9 million, up from a loss of $6.9 million in the second quarter and compared to $18.8 million a year earlier.
The company recorded a third quarter net income of $18.2 million, or $0.05 per diluted share, after a net tax benefit of $8.2 million. This compares with a net loss of $7.7 million, or $0.02 per diluted share in the prior quarter, and net income of $15.1 million, or $0.04 per diluted share a year earlier.
The company sold 1,174,600 PC units in the third quarter, essentially flat both sequentially and year-over-year. Based on preliminary IDC data, Gateway was the third largest PC company in the U.S. with an estimated 6 percent market share in the third quarter, unchanged from a year ago.
Gross margin for the third quarter was 7.6 percent, compared with 5.5 percent in the prior quarter and 8.3 percent in the third quarter of 2005. The sequential increase is due to significant gross margin improvements in Professional, offset by gross margin declines in the Direct segment. Q2 gross margin was impacted by a $12 million increase in warranty and royalty reserves. The year-over-year decline in gross margin is due to continued growth of the Retail segment, which increased the mix of lower margin business, as well as gross margin declines in the Direct segment.
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