Gateway Inc. is continuing its push into the consumer electronics market at the same time it is drastically expanding its computer business and retail channels with the March 11 purchase of eMachines Inc., the country's fourth-largest computer company.
The move is Gateway's latest recipe for returning to sustained profitability, a goal which has eluded it for 11 straight quarters, but one it plans to achieve in 2005.
Combined, the two companies became the country's third largest PC firm, with about 7 percent of the domestic market, and the eighth largest PC company worldwide.
Purchase of eMachines gives Gateway a broader line of computers, especially at the lower "value" end, and a growing international presence, particularly in the United Kingdom and Japan.
Gateway plans to use eMachines' extensive retail distribution network to further its reach into the consumer electronics market to which the company officially hitched its wagon last May after a successful holiday launch of its low-cost plasma screen TV.
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Gateway said it will adopt many aspects of eMachines' highly efficient and effective operating model to produce "substantial" cost savings and improved profit margins annually.
According to its Web site chart describing "Gateway-eMachines' 'Go to Market Strategy,'" Gateway will continue its direct selling model, marketing by phone, online and in person at its own stores. It will continue to offer Gateway brand consumer products and services as well as its premium, upscale products for business customers.
EMachines computers will remain available strictly through retail channels. The company will continue to target the high quality, value-priced and mass market sectors, but apparently not make custom computers.
Deal makes Inouye CEO
With the acquisition of eMachines, Gateway CEO Ted Waitt is once again stepping back from the day-to-day operations of the company, but will remain as chairman of the board. As provided for in the acquisition agreement, eMachines CEO Wayne Inouye becomes the CEO of Gateway Inc., and will be named to the board of directors. Roderick Sherwood III will remain as the company's chief financial officer.
The three men have led an "integration team" of both companies' senior executives to move the merger process along quickly and to combine plans for cost savings, product expansion and other growth strategies.
Under the eMachines acquisition agreement, John Hui - eMachines' chairman and principal stockholder - Inouye and eMachines' management team have entered into agreements for vesting periods and sales restrictions on Gateway stock, which will be enforced for the next two years.
Waitt last stepped away as CEO at the end of 1999 when he handed over the reins to then-president Jeffrey Weitzen. A year later, with sales slumping, Weitzen "resigned" and Waitt re-took the CEO spot, dumping other executives Weitzen had recruited and re-installing some of Gateway's original talent.
Weitzen, who took the company on a massive expansion up to 24,000 employees and into international markets, was among three former executives charged in November by the Securities and Exchange Commission with violating the anti-fraud and false-statements-to-accountants provision of the federal securities law. No wrongdoing was found by any current executives.
Michele Linck may be reached at (712) 293-4227 or michelelinck@siouxcityjournal.com
