Now that Christmas is out of the way, it's time for that other "most wonderful time... of the year" -- year-end earnings season, when those companies whose fiscal years align sensibly with the calendar version report their fourth-quarter and full-year results. Next up is PC maker Gateway (NYSE:GTW), which reports Thursday.

What analysts say:

  • Buy, sell, or waffle? Seven analysts follow Gateway. One says buy it, one says sell it, and everyone else counsels holding.
  • Revenues. On average, they think quarterly sales fell 7% to $1.05 billion.
  • Earnings. Profits are predicted to fall two-thirds to $0.02 per share.

What management says:
The word at Gateway this quarter was "detente." Early last month, the firm announced that it had reached a truce with activist investor Firebrand Partners (motto: "lighting a torch under management's rear"). In exchange for receiving one seat on the board, and for Gateway bringing in one additional outside director, Firebrand has agreed not to start a proxy battle for control of the company. With that issue laid to rest, management can now "focus its efforts on returning Gateway to profitability." Hmm. Reading over Firebrand's director nominee, though, I have my doubts about how well this development will benefit Gateway shareholders other than Firebrand. The nominee in question, Firebrand managing member Scott Galloway, should be familiar to Motley Fool Hidden Gems subscribers. He was one of the co-founders of RedEnvelope (NASDAQ:REDE), an ex-Gem that netted our members a mere 3% gain during the two years it spent in our portfolio -- and that has lost 35% of its value since we sold it in December 2005. According to Chairman Rick Snyder: "Scott's brand experience will be particularly helpful toward the development of Gateway's brand." Forgive me if I have my doubts.

What management does:
Then again, it's hard to imagine how things could get much worse at Gateway. Reviewing the firm's long-term margin trends, we see that rolling gross, operating, and net margins continue to plummet.

Margins

6/05

9/05

12/05

3/06

6/06

9/06

Gross

10.0%

9.2%

8.4%

7.8%

6.9%

6.7%

Operating

0.7%

1.2%

1.0%

0.9%

0.3%

0.0%

Net

(1.4%)

0.5%

0.2%

(0.0%)

(0.6%)

(0.6%)
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Given Galloway's less-than-stellar history, I fear the best an investor can hope for is that this new director just stays out of the way, and allows new Gateway CEO Edward Coleman to prove his mettle. Last quarter, Coleman got off to a good start as the firm reported accounts receivable falling 10%, and inventories down 37% -- both good numbers when measured against a single-digit decline in sales. On Thursday, we'll see if he can repeat that performance with a full quarter's employment to work with.

Competitors:

  • Apple (NASDAQ:AAPL)
  • Dell (NASDAQ:DELL)
  • Hewlett-Packard (NYSE:HPQ)
  • IBM (NYSE:IBM)
  • Sony (NYSE:SNE)

What did we expect out of Gateway last quarter, and what did it produce? Find out in:

Dell is an Inside Value and Stock Advisor recommendation.

Fool contributor Rich Smith does not own shares of any company named above. The Fool has a disclosure policy.