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What is a bit sad is that if you look at the start of the Gateway’s (NYSE:GTW) earnings release from yesterday it seemed like the company was actually doing at least something right, but the sales are an ongoing issue.  It posted an operating profit of $5.9 million and net income of $1.9 million, or $0.01 EPS.  Revenues were down again at $841 million.  It even listed gross margins of 7.6% company-wide.  Analysts expectations were $0.00 EPS on $953 million revenues.

It almost sounds like the company’s cost containment is helping it despite the fact that it is a far smaller company.  Gateway said it sold 1,088,400 PC units in the second quarter, down 13 percent sequentially and down 7 percent year-over-year.  Working capital at the end of the quarter was $314 million, which was unchanged from the end of the first quarter.  Accounts payable was lower as it had delays previously (to what it called more normal levels) to $610 million; accounts receivable was up about 3% to $314 million.  Other current assets dropped to $111 million from $203 million at the end of the first quarter, in part due to what it noted as improved collection of vendor credit programs.  The net result is that cash and marketable securities decreased to $255 million from $317 million at the end of the first quarter.

This quarter also included part of the old Microsoft settlement payments of $8.6 million, and we’ve noted before how this is not going to last indefinitely.  In the past we noted Gateway as one of the companies that management probably can’t fix.  There have not been any credible rumors of late and this one just feels stuck.  We were wondering at the end of last quarter if this one was even relevant in today’s world. 

Gateway shares are trading down $0.08 at $1.25, under the $1.31 low over the last year (from yesterday) and basically at half of the 52-week $2.44 high.  This is the day after the previous low after it closed down $0.12 after earnings.  After looking back at split adjusted trading, it looks like this may be at or very close to an all-time low for the ailing PC-maker.

Jon C. Ogg
August 3, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.