Tomorrow, computer maker Gateway (NYSE:GTW) opens up its Q2 2006 results to outside review. When they see the numbers, will investors have a cow?

What analysts say:

  • Buy, sell, or waffle? Eight analysts follow Gateway, and they're a despondent bunch (maybe they miss the cow?). Four of them rate the stock a hold, and the rest a sell.
  • Revenues. They predict, on average, that sales grew 15% in Q2, to an even $1 billion.
  • Earnings. On the other hand, they predict that profits fell 60% to just $0.02 per share.

What management says:
Last quarter found CEO Rick Snyder lamenting the fact that while retail sales were strong, the lagging "professional sales unit" held the company to a breakeven quarter (which was made a losing quarter as a result of litigation expenses.) Looking forward, Snyder noted that he had already switched out the top management at the firm's professional and direct business sales units, and promised to continue doing whatever it took to return these units to profitability within three to four quarters. In other words, don't expect to see them turn a profit tomorrow, but do look for some progress toward that goal. Turning back to retail, Snyder said that unit's 47% year-over-year growth in PC shipments proved that Gateway gained market share last quarter. All I can say to that, being a frustrated Dell (NASDAQ:DELL) shareholder myself, is that it's nice to see that somebody knows how to take market share from a competitor.

What management does:
The situation wasn't as pretty on the profits front. Gateway hit bottom (investors would hope) last quarter, as its rolling net margin finally landed smack dab at 0.0%. The damage began much higher up, however, with rolling gross margins falling for the past three quarters, which in turn began to weigh on rolling operating and net margins two quarters ago.

Margins %

12/04

3/05

6/05

9/05

12/05

3/06

Gross

10.8

9.8

10

9.2

8.4

7.8

Op.

(3.4)

(1.1)

0.7

1.2

1

0.9

Net

(15.6)

(11.2)

(1.4)

0.5

0.2

0
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

One Fool says:
Fellow Fool Rick Munarriz, an agnostic owner of computer parts made by Gateway, Dell, andHewlett-Packard (NYSE:HPQ), and a hunter of green gene stocks like myself, has this to say about Gateway: "Maintaining profitability -- and greenery -- is important to Gateway, since the shares aren't trading for a whole lot more than the $1.43 in cash that the company had at the end of December. it's got a fighting chance as long as there's money in the bank."

To which I'd just add one caveat for any Fools out there thinking of buying Gateway shares now that they're trading literally pennies above that $1.43 level. Gateway had $590 million in cash and equivalents at last report; but it also had $300 million in long-term debt. Subtract the latter from the former, and divide the result by shares outstanding, and every share of Gateway you buy brings with it a cash prize of $0.78. That's a nice cash cushion, sure. I just want to make sure everyone's aware that the $1.43 doesn't come debt-free.

Competitors:

  • Apple (NASDAQ:AAPL)
  • En Point (NASDAQ:ENPT)
  • PC Connection (NASDAQ:PCCC)
  • PC Mall (NASDAQ:MALL)

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

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Fool contributor Rich Smith owns shares of Dell. The Fool has an ironclad disclosure policy.