Gateway CEO Resigns

Wayne Inouye, who in his two years as CEO led Gateway back to profitability; the board begins its search for a successor.

Wayne Inouye, who took over as head of Gateway in 2004 after eMachines bought the computer maker, is stepping down as CEO.

He will be replaced on an interim basis by board Chairman Rick Snyder, and the board of directors said it will begin immediately a search to replace Inouye.

A release Feb. 8 from Gateway, of Irvine, Calif., said that Inouye resigned that day to pursue other opportunities.

"On behalf of the board, I want to thank Wayne for his efforts during the past two years to stabilize and build the company," Snyder said in a prepared statement. "Thanks to the efforts of the management team and employees, Gateway last year posted its first GAAP profit since 2000, and recognized a $643 million improvement in operating income from 2004, while experiencing an increase in brand awareness and continued positive reception for its products and services from customers and trade press alike."

The surprise resignation comes after Gateway, under Inouye's leadership, returned to profitability following several difficult years under founder and former CEO Ted Waitt.

Gateway bought eMachines, led by Inouye, in 2004 for about $289 million in what analysts called a reverse acquisition. The move made Gateway the third largest PC maker in the United States. Gateway may have bought eMachines, but it was clear from the beginning that it was eMachines—and more specifically Inouye—that was calling the shots.

In short order, Inouye pared down Gateway's work force and management team, installed many eMachines executives in many top positions, and moved the company's headquarters from Poway, Calif., to Irvine, where eMachines had been headquartered. Inouye also quickly got Gateway out of a lot of product pushes that Waitt had been trying to use to revive the company's fortunes, saying instead that Gateway would refocus itself on PCs and PC-related products.

In addition, Inouye shut down Gateway's 190 retail stores nationwide. In their place, Inouye pursued a retail plan for many Gateway products, getting shelf space for them in such stores as BestBuy, OfficeMax and Circuit City.

Under Inouye, Gateway also pursued a strategy of marketing two product lines, the eMachines portfolio aimed at value buyers and the Gateway-branded systems targeted at the higher end.

Other moves included getting Gateway out of the business of manufacturing its products, pushing those duties onto independent ODMs; integrating Gateway and eMachines products so that they shared common components; and growing its direct business for higher-end Gateway-branded systems.

All the moves were designed to get Gateway's cost structure in order, and the result has been several consecutive quarters of profitability, something that hadn't happened to Gateway for almost three years before.

In an interview with eWEEK last year, Inouye said he wanted to grow the business—particularly in the commercial space—focus on SMBs (small and midsize businesses) and make the company more customer-focused, in part by making the company's Web site not just a place to buy products but to get answers to business questions.

Despite the successes, Gateway has still struggled in the ultra-competitive PC space. In the last quarter of 2005, Gateway earned $224 million on $1.2 billion in sales, but Inouye said that the company's direct-sales business was disappointing, and that Gateway was not doing a good enough job of managing profit margins. He said that the company was still in the midst of a turnaround from the eMachines sale.

Snyder has a long history with Gateway. He joined as an executive vice president and director, and with Waitt led Gateway's initial public offering. In January 1996, he was promoted to president and chief operating officer, a job he held until leaving the company in August 1997.

In the statement, Snyder said there will be no immediate strategic changes at Gateway in terms of product offerings or marketing and sales efforts.

"Having just approved the 2006 annual operating plan, I and the other directors believe the company is essentially on the right course for long-term growth, and that our employees and senior management team have a sense of urgency about improving the company's financial results," Snyder said. "However, we will take this opportunity to re-examine the strategic direction of Gateway to fine-tune our products, services and approach to our professional and consumer direct markets."

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