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Gateway Inc., which has spent the past year trying to expand beyond its PC-making roots, on Friday announced it was buying privately-held computer-maker eMachines Inc. for about $235 million.

Officials with Gateway, in Poway, Calif., said the combined company will create the third-largest computer maker in the country behind Hewlett-Packard Co. and Dell Inc.—and eighth in the world—with combined 2003 revenue of $4.5 billion and more than 7 percent of the U.S. PC market. EMachines, of Irvine, Calif., generated about $1.1 billion in revenue last year.

Gateway will pay $30 million and 50 million shares of stock for eMachines, and officials say they expect the deal to close in six-to-eight weeks. Gateway officials expect the deal to help it reach profitability in 2005.

Under the terms of the deal, eMachines CEO Wayne Inouye will take the same role at Gateway, and Ted Waitt, Gateway’s current CEO, would remain as chairman. Roderick Sherwood will remain as Gateway’s chief financial officer.

Gateway is hoping to expand its computer and growing consumer electronics business by taking advantage of eMachine’s low-cost operating model and retail channels while at the same time reducing its own operating expenses.

During a conference call with reporters, both Waitt and Inouye touted the synergies that will be realized by combining Gateway’s direct sales model with the indirect model of eMachines, which sells its products though such retail outlets as BestBuy and Circuit City. However, Waitt had to field several questions on that indirect model’s impact on Gateway’s own retail stores. There are no plans now to start selling eMachines products in Gateway’s stores, he said.

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