EMachines Executives Move Quickly to Reshape Gateway

By ANDREW SIMONS

Staff Reporter

Gateway Inc. may be founder Ted Waitt’s baby, but it’s now firmly in the hands of Wayne Inouye.

The former chief executive of Irvine-based eMachines Inc. is reshaping computer maker Gateway, less than three weeks after its purchase of eMachines for nearly $300 million.

Two weeks ago, Inouye installed a handful of eMachines lieutenants in the upper ranks of Gateway’s new management team. Seven of Gateway’s top executives now hail from eMachines, while six former high-ranking Gateway leaders are leaving and another is taking on a lesser role.

Then came word that Gateway plans to move from Poway to Orange County, likely to the Irvine Spectrum. The pending move brings the core of the company closer to its new top executives, including Inouye.

“The whole point is that for (Inouye) to be effective, he has to have a team in place that’s responsive to him,” said Roger Kay, an analyst with International Data Corp.

The moves may have some wondering who bought whom. With $1 billion in yearly sales, eMachines is about a third the size of Gateway. But the Irvine-based discount computer seller is in better shape than struggling Gateway, thanks to a turnaround led by Inouye that has stressed better quality and service.

Gateway sales last year fell nearly 20 percent from 2002, to $3 billion. Its operating loss was $510 million, the same as a year earlier.

Inouye’s emergence also likely spells the end for Gateway’s own chain of 190 stores, which sell computers and other electronics under the Gateway brand. There’s an “implicit understanding that the stores are going to be de-emphasized,” Kay said.

In a recent update for investors and analysts, Chief Financial Officer Rod Sherwood said the workforce is at 6,500, down from 7,400 at the end of 2003. That’s expected to fall to 5,500 or so in the next few months, he said.

Analysts expect Gateway to use eMachines’ ties to Best Buy Co., Circuit City Stores Inc. and Wal-Mart Stores Inc. to push its own computers and other products.