At Gateway, everything old is new again

Founder Ted Waitt, who has resumed the role of CEO, will apparently try to move the company back to its roots.

Michael Kanellos Staff Writer, CNET News.com
Michael Kanellos is editor at large at CNET News.com, where he covers hardware, research and development, start-ups and the tech industry overseas.
Michael Kanellos
5 min read
At Gateway, it is out with the new and in with the old.

A day after founder Ted Waitt returned as CEO in a surprise management shake-up, the new executive team briefed upper- and mid-level management during a midday conference call. In the call, the executives began to flesh out the first steps in a strategy to reverse the PC maker's recent precipitous slide. The mood they conveyed was one of urgency, a Gateway insider said.

Waitt is expected to deliver a relatively complete turnaround strategy during Gateway's Feb. 28 analysts meeting. But so far, it appears that Waitt is trying to move the company back to its roots. He has stated that he wants to re-emphasize the company's direct sales strategy, which has become attenuated through retail efforts over the past three years.

The new management team also has a familiar cast to it. Seven of 14 of Gateway's top executives are gone, including CEO Jeff Weitzen, the chief financial officer, the chief technology offer, the vice chairman, and the chiefs of consumer marketing and technology. Most of them had been at Gateway about three years or less. They are being replaced by seasoned Gateway executives, some of whom have been at the company for more than a decade.

Meanwhile, Joe Burke, the company's newly named chief financial officer, has accountants doing double time to look over the books and cut costs, sources said.

In what may be one of the more jarring corporate coups in recent memory, Waitt returned from semi-retirement Monday as CEO Jeff Weitzen left unexpectedly.

One former Gateway executive said Weitzen was "absolutely" surprised by the sudden change in management.

Former Gateway executives and analysts downplayed the possibility of any long-standing feud between Waitt and Weitzen. By all accounts, the two executives got along well on a personal and professional level. The two often agreed on strategic ideas and in many instances came up with similar marketing ideas.

"Ted and Jeff had a pretty good relationship," said Ashok Kumar, an analyst at U.S. Bancorp Piper Jaffray.

John Todd's departure as chief financial officer did not surprise some analysts.

"I was pleased to see that John Todd will no longer be with the company," Technology Business Research analyst Brooks Gray said. "I believe that John Todd, while pumping up the success of Gateway's beyond-the-box business, should have recognized the implications of the rapidly declining hardware profitability."

Hands-off, hands-on
Waitt's decision to jump back into Gateway apparently came recently. Until the company's fourth-quarter miss, when the company fell short of revised expectations and posted a $94.3 million loss, Waitt had been very hands off, insiders said.

One insider believed that the Gateway chairman had been growing uneasy about the losses and "bloated costs" in the company's PC business. Gateway's disastrous fourth quarter after a knockout third quarter may have taken Waitt by surprise, one insider speculated.

Weitzen's and Todd's apparent undoing may have come from the approximately 380 Gateway Country stores worldwide. The two may have been sucked in by the allure of high-margin, beyond-the-box items, such as software, services and training.

Gateway opened about 300 Country stores during Weitzen's tenure with the company. Weitzen is generally viewed as one of the strongest advocates of the retail strategy.

But Burke, who had been responsible for Gateway's global expansion, also had a hand in the evolution of the Country stores. As CFO, he could have the most influence over their future.

Apparently the problem with the Country stores is not so much one of concept but of focus, with too much emphasis on beyond-the-box sales, according to insiders and analysts.

"Beyond the box will only take you so far," Gartner analyst Kevin Knox said. He noted that 100 percent of Gateway's fourth-quarter earnings came from non-hardware sales. "If you're a PC company, you have to make money on PCs," he added.

One insider said she believed losses on Gateway's hardware business deeply troubled Waitt. During a conference call with analysts Tuesday, he vowed to take the company back to its "direct roots."

Stepping in during a crisis would not be unlike Waitt, analysts said.

"Ted got there and decided to clean house, and he's enough of an action-oriented guy to just do it," IDC analyst Roger Kay said. "Now he's got to get a new team in place that can turn the ship around and capitalize on the brand equity Gateway already has."

Waitt like Jobs?
Kay described Waitt's return "as the Steve Jobs role. You come back in, your investment is saved and your pride as well."

Ironically, several Gateway insiders likened Waitt's return and vision to that of Apple Computer CEO Jobs. "But he's way cooler," one insider quipped about Waitt.

Several Gateway employees described the mood as "very enthusiastic" or "upbeat" after Waitt's return. "He's very visionary, able to draw you into the vision," said one insider. "People are pumped," said another.

Culturally, the new organization will be a case of deja vu. Many of the executives who are departing came to the company after Weitzen became chief operating officer in January 1998. Soon after he arrived, Weitzen began to recruit corporate managers to key positions. He also was instrumental in moving the company from South Dakota to San Diego. Weitzen said the move would help recruiting.

By contrast, some of the new leading executives are old Gateway hands. Bart Brown, who will replace Cliff Holtz as vice president of the consumer division, has been at the company for 12 years. Dave Russell, who will head supply chain management, has been at Gateway since 1988.

"They were all relatively new," one former Gateway executive said of Weitzen and the other departing executives. "The new guys have been there longer. The common thread is that they are much more implicitly identified " with the company.

"Ted has some urgency here and wanted a hand-picked team he could trust," said one insider.

During a conference call Tuesday morning, Waitt made it clear: "My management style is a lot different from Jeff's. What I needed was a faster, aggressive, more experienced team."