Why the eMachines Model Is Paying Off

In an exclusive eWEEK interview, eMachines founder John Hui explains why the company's model works in today's market and what his plans are now that eMachines has been acquired by Gateway.

In 1998, when the "smart" money was being placed on Internet startups, eMachines Inc. was founded with the noble, if not tired, mission to build quality, inexpensive PCs for consumers. It was an idea straight out of a 1992 time capsule. And like many PC makers in 1992, eMachines found itself on life support after only two short years. In 2001, desperate to keep his ship afloat, company founder John Hui bought the publicly traded company back for about $1 a share and set it on an intensely focused course of customer focus and low overhead. His first order of business: Hire someone to lead the company who had a more intimate knowledge of the eMachines customer—not the technology. Hui found that person in Wayne Inouye, the companys main man at its top distribution partner, Best Buy. The move paid off. Shipments started to climb, and revenues followed. All the while, eMachines, under the team of Inouye and Hui, stayed focused, and by the time Gateway Inc. completed its acquisition of the company last month, eMachines had shipped a total of more than 5 million PCs. Hui took time out of his schedule earlier last week to give an update on his career, as well as explain the significance of the eMachines model, to Michael R. Zimmerman, eWEEK Executive Editor/News.

Youre now the second largest Gateway shareholder [37.5 mill shares], but other than that you were not part of the reorg after the acquisition was made. What are you doing now?

Nothing. (laughs) No, Im just kidding. After this, and in the spirit of turning eMachines around, Im actively looking for companies that are similar to eMachines. Something I can turn around and do something about.

What kind of company are you looking for?

[A company] that needs some restructuring and needs some direction so I can have a chance to turn it around.

Are you sticking with the tech sector or considering companies outside the industry?

Preferably in the tech sector. Thats the only field I really know. Other fields I dont know that well. But of course, if its not an area that requires a special expertise, I would consider it.

Do you have any potential companies lined up?

No. Honestly, the few that Im interested in are in office supplies.

Are you thinking U.S.-based?

Preferably, yes, U.S.-based.

Youve said publicly that you first started thinking about acquiring Gateway back in 2002. My question is, the stock situation aside—that ts was trading at below cash value—what was it about Gateway that interested you the most?

This is a very sensitive topic. I can tell you as much that at the time we believed we could contribute a lot to the situation. Because we were a very low-cost, low-overhead company. And we believed that Gateways overhead was too high. If we entered into this, we would be able to turn the company around. So that was why we decided to go for it.

But there must have been something. Gateway did have things to offer, but at the same time, in that 2002 timeframe, they were already moving toward their second year of losses. Revenues continued to decline. They continued to reduce their employee ranks, and all the while shipments were down. So I was just curious about what it was that you saw in them. And I have this short list of things that you may have been interested in and I wanted to get your feedback on. Was it customer base? Theyve got over 300 patents. Was it manufacturing?

How about we do it this way-—I cite one example, which is public now.


Because at this time I really cannot talk, because Gateway is a public company and I am one of the largest shareholders and at this moment I am qualified as an insider, so its difficult for me to discuss anything in detail. A good example is that from the very beginning my philosophy was that Gateway should close all the stores—based on the overhead. Because [overhead] is very costly. And so, obviously, they are now closing all their stores. So that was our belief from the very beginning—to reduce overhead significantly. But there are other reasons for the stores to be closed. … Wed save on sales tax, and its very difficult to compete with the reseller. We view people like Best Buy and Wal-Mart [as resellers]; look how strong they are; how powerful they are in the retail area. It would be very difficult for Gateway to … compete with them. For example, if you are Apple theres lots of places to buy them. Everyone knows youre carrying Intel and Microsoft. They can easily go to the store, go shopping and buy [Intel and Microsoft] at Best Buy. And then you get into the situation of carrying the inventories, and that would defeat the purpose of having a mail-order company.

It is interesting how this played out and how it was executed.

I would like to emphasize that Ted [Waitt, chairman of Gateway] is still the chairman, and I have no role in the company at all. And Wayne [Inyoue, Gateway president and CEO] reports only to Ted. I dont talk to Wayne at all about business.

So youre in no advisory capacity with Wayne.

Absolutely not. Because he is the CEO and Ted is the chairman. He only reports to Ted. As a friend we talk, but other than that we dont talk business.

Next page: PC business now a commodity.