Tic-tac-toe, investors want to know: Will computer maker Gateway (NYSE:GTW) make it three in a row for earnings misses when it reports its fiscal Q3 2006 numbers Thursday afternoon?

What analysts say:

  • Buy, sell, or waffle? Six analysts still follow Gateway. That's down two from last quarter, and the ones still hanging around are a pretty down bunch overall. Four of them say hold; the other two say sell.
  • Revenues. On average, they think Gateway grew sales 4% in Q3, to $1.06 billion.
  • Earnings. They also fear that the company won't show a penny of profit for Q3.

What management says:
As flu season approaches the U.S., there appears to be a corollary epidemic beginning to spread among the nation's high-tech companies: Buyout fever -- or the fear thereof. Last week, in our Foolish Forecast discussing L-3 Communications, we took at look at that firm's stock price lagging a bit behind both the S&P 500 and its peer defense contractors, and how that may have been part of the impetus behind a "golden parachute" plan implemented to ensure rich severance payouts to employees in the event of a buyout.

The same may be going on at Gateway, but for even stronger reasons:

(a) Its stock price is underperforming the S&P even worse than is L-3's.

(b) Hedge funds Firebrand and Harbinger Capital have been accumulating a large stake in the firm.

(c) In contrast to L-3, which expressly disclaims having received an offer, eMachines founder "John" Hui offered to buy Gateway back in August.

That was reason enough for Gateway to approve a plan earlier this month, under which the company would give its vice presidents and senior VPs as much as 2.5 times their annual salaries in the event they are terminated after a "change of control."

What management does:
After a brief period of resurgence nearly one year ago, Gateway's performance has resumed its laggard ways, with rolling gross margins falling for a full year straight now, and rolling operating and net margins falling nearly that long.

Margins %

3/05

6/05

9/05

12/05

3/06

6/06

Gross

9.8

10.0

9.2

8.4

7.8

6.9

Op.

(1.1)

0.7

1.2

1.0

0.9

0.3

Net

(11.2)

(1.4)

0.5

0.2

(0.0)

(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:
We're starting to approach crunch time for Gateway Chairman Rick Snyder and company. Back in Q1's earnings report, when he was interim CEO, you'll recall that Snyder promised to return his firm's professional and direct business sales units to profitability within "three to four quarters." Direct sales is indeed now profitable, but the professional division reported another loss last quarter. Thursday's news will leave Snyder one or two quarters to go to deliver on the rest of his promise.

On the other hand, Snyder may still manage to avoid the blame if Gateway fumbles its turnaround, thanks to his bringing a new CEO aboard to share the blame (or glory). In September, the firm announced that it has hired Arrow Electronics (NYSE:ARW), Computer Sciences (NYSE:CSC), and IBM (NYSE:IBM) alumnus J. Edward Coleman to take the helm at Gateway. I will be rooting for Coleman's success and looking forward to see what he has to say as he runs his first earnings release as Gateway CEO on Thursday. Why? Because according to his bio, we share an alma mater in The College of William & Mary.

"Go, Tribe!" Mr. Coleman, and Godspeed.

Competitors:

  • Apple (NASDAQ:AAPL)
  • Hewlett-Packard (NYSE:HPQ)
  • PC Connection (NASDAQ:PCCC)

What else do you need to know about Gateway to be ready for tomorrow's news release? I'd suggest these columns:

What are investors like you saying about Gateway? Find out by taking a visit to Motley Fool CAPS, our new stock-rating service that harnesses the power of the Fool community.

Fool contributorRich Smithdoes not own shares of any company named above.