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Direct reseller distributor CDW reported $1.74 billion in revenue Oct. 18, for the third quarter of 2006, up 4.1 percent for the same period last year, but $20 million shy of market estimates.

CDW, of Vernon Hills, Ill., and analysts attributed the weaker-than-expected performance to down margins and the ongoing transformation of the sales organization to a regional model.

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Gross margins fell to 15.4 percent during the quarter, up 13 points from the third quarter of 2005, but less than an expected 15.8 percent, said CDW and financial research firm Raymond James and Associates.

The company’s growth was also dragged by a downturn in enterprise sales, down 2.5 percent for the same period in 2005, but much of that was offset by growth in the reseller’s public sector arm, CDW Government, which saw sales rise 17.6 year-to-year.

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The company’s recent acquisition in September of Berbee Information Networks, Madison, Wis., has impacted CDW’s operating margins and the transformation of the company’s sales force to a regional model, initiated last fall, has injured sales some, CDW and analysts said.

But both moves are seen as positive steps and the effects should be mitigated within the next year, analysts said.