Mobile electronics designer Audiovox (NASDAQ:VOXX) reported first-quarter earnings Monday night, showing lower sales and earnings year over year. But all of that was expected, and the market hasn't punished the shares for the uninspired performance. The story now is margins, but is the company really delivering on that measure?

Gross revenue dropped 23% from the comparable period in 2005 to land at $111 million. Audiovox likes to report earnings in the form of net income from continuing operations, and that figure dropped by 69% from last year, to $0.08 per diluted share.

The decrease in sales is due to a combination of factors: shipments of a receiver for XM Satellite Radio (NASDAQ:XMSR) programming were halted when the device was found not to meet FCC emissions standards, and portable DVD promotions that would cut into selling margins were discontinued. The earnings release repeatedly mentions a focus on margins, and management says that gross margins are expanding. Moreover, upcoming product launches are supposed to boost selling margins further, as the prices have been set with that strategy in mind. Sacrifice sales, reap margin improvements.

Talk is cheap, though. Yes, Audiovox's gross margins improved from 15.8% last year to 18% this period, but net margins dropped by 65% and operating margins turned negative. That hardly counts as improvement.

In all fairness, Audiovox competes in a tough industry. It's hardly the only provider of XM and Sirius (NASDAQ:SIRI) receivers, and has to compete against much larger companies like Garmin (NASDAQ:GRMN), Philips (NYSE:PHG), and Sony (NYSE:SNE). But if you're going to give up large portions of your income, you better make sure that the margin improvements are worth it. I'd love to see the company trickling cost improvements down through the rest of the income statement, too, but so far it hasn't been able to do that. So until that happens, I'd say you're better off with some of the larger competitors, which have all shown a better ability to manage pricing and margins.

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Fool contributor Anders Bylund owns no stock in the companies discussed. He's a big fan of gadgets, but doesn't own all that many of those, either. Foolish disclosure delivers on all its promises, every time.