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New Chief Executive Takes Gateway Helm

Change in leadership comes as the computer maker completes its acquisition of rival EMachines.

March 12, 2004|From Times Staff and Wire Reports

Wayne Inouye took over Thursday as chief executive of Gateway Inc. as the troubled PC maker completed its $290-million purchase of smaller rival EMachines.

Gateway co-founder Ted Waitt, who returned to the company as CEO in January 2001 after a year's absence, will remain as chairman. He was unable to return the Poway, Calif., firm to profitability after losing $1.84 billion in the last three years.

EMachines, on the other hand, has turned in nine straight quarters of profit by selling low-cost PCs to retail stores. Gateway said Thursday that it expected to return to "sustained profitability" in 2005 as it benefits from sales growth and cost savings.

The combined company ranks as the third-largest computer maker in the U.S., according to market researcher IDC.

Waitt started Gateway in an Iowa farmhouse in 1985, building the company into one of the world's largest PC makers. But as competition with Dell Inc. and Hewlett-Packard Co. shaved profit margins, the company struggled to keep up.

The acquisition gives Gateway access to expanded retail distribution through EMachines' links with huge electronics chains such as Best Buy Co. and Circuit City Stores Inc. It also gives EMachines access to some of Gateway's $1.1 billion in cash and marketable securities to help its low-end business grow.

In addition to PCs, Gateway sells an array of higher-margin consumer electronics items such as flat-screen televisions and digital cameras. When the deal was announced in January, Waitt said it would help the company reach more customers in more kinds of stores and offer a wider variety of brands and products.

Gateway said Inouye would be issued options to purchase 10 million shares at Thursday's New York Stock Exchange closing price of $5.19, down 18 cents. An additional 29 EMachines executives received a total of 2.4 million shares, part of the 50 million shares issued by Gateway to buy EMachines. Gateway also paid $30 million in cash.

Gateway also said it was looking for a new independent accountant after PricewaterhouseCoopers said it wouldn't seek reappointment.

There were no disagreements with PricewaterhouseCoopers, Gateway said, and the company is already in discussions to appoint a new accounting firm, which it didn't identify. Executives will need approval for the change at Gateway's annual shareholder meeting on May 20.

Bloomberg News was used in compiling this report.

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