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Emachines may go on the block

The low-price PC maker has asked Credit Suisse First Boston to help it evaluate "strategic alternatives," which could include putting itself up for sale.

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Low-price PC maker Emachines may soon be up for sale.

On Tuesday, Emachines said it has asked Credit Suisse First Boston to help it evaluate "strategic alternatives," which could include putting itself up for sale.

If so, Emachines would become the second PC maker to go on the block this year. Micron Electronics sold its PC division to Gores Technology Group last week. Micron will now focus on developing an Internet hosting business.

Investors reacted well to the news. Emachines' stock closed up 18 cents, or 75 percent, to 42 cents on a volume of 10.5 million shares--more than 22 times its average daily volume.

Irvine, Calif.-based Emachines enjoyed a fast start and, at one time, was the fastest-growing PC maker as consumers adopted its low-price desktops in droves. The company sold 1 million units in its first year and has sold 3.7 million units since it's inception in November 1998.

But the company has continually lost money and failed in an attempt to generate advertising revenues from an Internet portal it had planned to build for its customers. Emachines was also hit particularly hard by the slowing of the PC market in the fourth quarter of 2000 and during 2001. It sold 311,000 units in the fourth quarter, down 49 percent from the fourth quarter of 1999.

"As a result of our continuing review of strategic alternatives following our recent restructuring," CEO Wayne Inouye said in a statement Tuesday, "we believe this is an appropriate time for Emachines to explore opportunities to maximize shareholder value."

A company representative declined comment. Emachines' annual shareholder meeting is set for June. It will report earnings for its second fiscal quarter in July.

Late Monday, the company announced appointments to five new senior management positions, including two executives from Best Buy and one from Micron Electronics.

The company ousted CEO Stephen Dukker in late February and announced a restructuring plan in early March aimed at reducing costs.

Analysts predicted at the time that Emachines would be the next casualty of the slow PC market.

Emachines will be a tough sell, especially to existing players in the PC business, IDC analyst Roger Kay said Tuesday.

"There's not much value to a brand in the PC industry, right now," Kay said.

Emachines has a strong brand identity as a low-cost PC maker. But unlike a computer maker like Apple Computer, Emachines does not have many additional assets outside of its PCs, such as software or other intellectual property.

"I think this is the Micron story again," Kay said. "No one is going to buy it. The only ones that come to (auction-style sales) are the financial companies."

Emachines has another strike against it in that its business model--which is to sell large numbers of low-cost PCs--has been hit hard by the current market conditions.

"If anything, people at the bottom end have bought up. It's almost like the market for low-cost PCs has dried up," Kay said.

The day before the sale, the company announced it will sell a new eMonster 1000B desktop PC with a 1GHz Intel Pentium III chip for $699 after a $75 rebate.

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