Gateway Aims for Success After Transition

Q&A: Senior Editor Jeffrey Burt talks with Gateway CEO Wayne Inouye about the company's strategies for staying financially viable.

Since taking over the CEO post at Gateway Inc. in March 2004—after the companys $289 million acquisition of eMachines Inc.—Wayne Inouye has remade the computer maker into a lean, financially viable company. He slashed the payroll, trimmed the management ranks, shuttered Gateways stores, outsourced manufacturing and streamlined the product portfolio.

After 13 losing quarters, Gateway has turned in three consecutive profitable quarters. The companys professional business will be a key to continuing that success, Inouye said in an interview with Senior Editor Jeffrey Burt.

eWEEK: When you look back at your first 15 months at Gateway, what were your goals, and have you met them?

Inouye: With a makeover, do-over, however you like to describe it, there are really there basic steps that you have to pay attention to.

The first step is really about getting your cost structure in line.

So the reorganization, the consolidation, the [re]location [of the companys headquarters from Poway, Calif., to Irvine, Calif.], the closing down stores, was really all about getting our cost structure in a position to compete.

Theres been some discussion about PC companies being around by 2007, and I think the only way you can be around is if you have a cost structure that allows you to compete with the very best.

If you look at our cost structure now, we are competing at a level at or below Dell [Inc.], and I expect our cost structure to go down even further than that in the ensuing years.

So the first 15 months has widely been around focusing on getting our cost structure [and] organization at the appropriate size so we can compete.

I think weve done a pretty good job at doing that. In fact, Gateway has achieved three state quarters of operating profit. Previous to that there were 13 quarters of losses.

What moves are you eyeing in the upcoming quarters to continue this profitability?

The second step to recovery, or turnaround, is really to figure out how to sell more and increase your revenue. Our focus right now is the professional [business]. It comprises two-thirds of the PC business as we know it, and its largely controlled by one competitor, and that would be Dell. So were really focused on growing our market share. Its very low now. We feel that were building some momentum there.

That is not to say that were taking our eye off the ball in the area we do best in, and that is retail.

What plans do you have in place to get that larger share of the market?

I believe its controlled by our customers. I think the way that you get business in any marketplace is to address your customer needs. Clearly were taking a different approach than [Hewlett-Packard Co.] or Dell when it comes to addressing the professional market.

Now we have a more targeted approach to the marketplace. Its focused on education, government and business to an extent. Theres also a small business initiative that were kicking off shortly and thats going to be the focus of our direct business, which is Web- and phone-based.

Can you talk a bit more about how you differentiate yourself from Dell and HP in the professional space?

There are basically four areas that you compete in, and generally you have to be at parity in three of the areas, and one you have to own, if you have any ambitions of winning in the marketplace.

In our case, its about creating customer intimacy. Simply put, that means that customers have greater access to us based on a hierarchy we create within the company. Were also taking what I would call an "honest broker" approach in dealing with our customers at large.

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