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Struggling EMachines Replaces CEO

Computers: Best Buy executive will succeed Stephen Dukker. Firm is fighting to survive after a tough year.

February 27, 2001|KAREN ALEXANDER | TIMES STAFF WRITER

Troubled Irvine computer vendor EMachines Inc. named a new chief executive Monday to replace Stephen Dukker, who is leaving the company that he helped found.

Wayne R. Inouye, 48, who has an extensive background in computer retailing, will become president and CEO on March 5.

Inouye joins EMachines as the company is fighting to survive. While the entire personal computer industry has been struggling, EMachines has been particularly hard hit, encountering a dismal holiday season that resulted in a huge fourth-quarter loss.

"I think it's a question of time before EMachines folds completely or is bought out," said Anne Bui, a computer industry analyst with IDC. "But I'm not sure who would want to buy them now, because others in the PC market are struggling with issues of their own."

The company also has been warned that its stock may be removed from the Nasdaq market because the shares have not traded above $1 since Nov. 7.

Despite a small early rally in its shares in response to Monday morning's announcement, EMachines finished the day unchanged at 38 cents a share.

Inouye, who also will join EMachines' board, could not be reached for comment. He had been senior vice president of computer merchandising for Best Buy Co. since 1995.

Dukker, 48, who declined to be interviewed, will remain with the company until March 4.

No reason was given for Dukker's departure, but the company's most recent quarter was particularly brutal. Losses swelled to nearly $129 million as revenue slumped 56% to $134.8 million. For all of last year, EMachines' losses grew to $221 million from $9.5 million as revenue fell 17% to $684 million.

EMachines was founded in 1998, supplying low-end, low-cost home computers--some for as little as $399. By June 1999, the company had become the third-largest seller of desktop PCs to U.S. retail stores.

But despite capturing significant market share, EMachines' margin on sales was so small that it could not withstand an industry slowdown. Even when sales were brisk, the company kept just 5 cents for every dollar of sales, compared with about 25 cents for its chief competitors.

With PC spending slowing considerably, even major computer companies, including Hewlett-Packard Co., Compaq Computer Corp. and Dell Computer Corp., have struggled. But the problems at EMachines have been confounded by its relatively narrow line of products and lack of a strong customer base outside the United States, Bui said.

"Other vendors have the advantage of not only playing in the consumer market, they have corporate and high-end computer products, and they can look to the server and storage markets as a buffer in times of fickleness and fluctuation in the market," she said.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

In a Slump

EMachines Inc.'s losses grew in the fourth quarter as sales fell sharply.

Quarterly results:

Figures in millions

SALES:

4th, 2000: $134.8

NET INCOME:

4th, 2000: $-128.9

Source: Bloomberg News

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