Gateways Turnaround Under Inouye

By John G. Spooner  |  Posted 2006-02-09 Print this article Print

Gateway bought eMachines for about $289 million in March 2004 in what analysts termed a reverse acquisition. The move made Gateway the third-largest PC maker in the United States, and Inouye quickly started putting his mark on the company, which had struggled during the previous few years under Waitts direction.
Gateway may have bought eMachines, but Inouye almost immediately began making moves to bolster the company.
As part of that turnaround, Inouye pared down Gateways work force to fewer than 2,000, moved the company headquarters from suburban San Diego to eMachines hometown of Irvine, Calif., installed many eMachines executives in top positions and closed down Gateways 190 retail stores. In their place, Inouye pursued a retail strategy, getting shelf space for the companys PCs at big-name stores such as Best Buy, OfficeMax and Circuit City. There, it marketed its eMachines and Gateway-brand PCs as value and premium machines, respectively. Inouye also reorganized Gateways manufacturing, placing its two brands of PCs onto platforms that could share components and using third-party assemblers, as opposed to building the machines in-house. The measures were designed to get Gateways cost structure in order, and resulted in the company returning to profitability in 2005. Despite that success, Gateway has still struggled in some areas of the ultra-competitive PC market. Inouye himself said Gateways direct-sales business was disappointing and the company was not doing a good enough job of managing its profit margins following its fourth-quarter earnings report. Gateway, he said, is still in the midst of a post-eMachines turnaround. Click here to read more about Inouyes thoughts on Gateways path to success. Thus, Gateways new management will have its work cut out for it, analysts said, particularly as it indicated it has no immediate plans to sell to a competitor. Gateway management must guide its brand carefully, going forward, said Roger Kay, principal analyst at Endpoint Technologies Associates in Wayland, Mass. "During Waynes tenure, the company stuck to one strategy, which was a break from the previous [leadership under Waitt]," Kay said. "Gateway had shifted strategy so many times, none of them was credible. He gets credit for staying the course and giving Gateway a more solid brand image." Inouye did a good job of improving the operations of the company and tightening the budget, but was unable to make the next step happen that the company needed, according to Kay. "There was steady improvement, but it was pretty slow improvement," he said. One major issue for Gateway has been its position versus competitors. It doesnt have the size or reach of larger rivals such as HP, its main competitor at retail, or Dell, a direct sales rival thats also strong in government and education accounts. It must also contend with up-and-comers such as Acer and Lenovo Group, which has placed major emphasis on targeting SMBs following its purchase of IBMs PC business. Gateway must rise above the din and get people to look its way, something it wasnt able to do under Inouye, Kay said. Despite a deep knowledge of operational strategy and retail business, "what [Inouye] seemed to lack was the necessary imagination to get them to the next level." The former Gateway chief will server as an advisor until a permanent replacement can be found. He will be given a years salary—about $720,000—and three years worth of health benefits, the company said. Check out eWEEK.coms for the latest news in desktop and notebook computing.

John G. Spooner John G. Spooner, a senior writer for eWeek, chronicles the PC industry, in addition to covering semiconductors and, on occasion, automotive technology. Prior to joining eWeek in 2005, Mr. Spooner spent more than four years as a staff writer for CNET, where he covered computer hardware. He has also worked as a staff writer for ZDNET News.

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