Gateway chief exec steps down; former CEO returns

Amid a sharp downturn in its PC business, Gateway says that Chief Executive Jeff Weitzen has stepped down and will be replaced by his predecessor, Ted Waitt.

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Amid a sharp downturn in its PC business, Gateway said Monday that Chief Executive Jeffrey Weitzen has stepped down and will be replaced by the company's founder and chairman, Ted Waitt.

Weitzen replaced Waitt as CEO on Jan. 1, 2000. However, Waitt has remained active in the San Diego-based company and owns about 100 million shares, or roughly one-third of the company's stock.

"I love Gateway, and I'm going to do everything in my power to make sure the company can grow and prosper in this challenging environment," Waitt said in a statement.

The executive change comes amid an industrywide slowdown that has hit Gateway especially hard. Earlier this month, the company missed lowered earnings expectations and said it is laying off more than 10 percent of its work force.

Gateway spokesman John Spelich said Waitt's return is not an interim move.

"He is the CEO," Spelich said. "We are not looking for anyone to come in anytime soon."

Waitt is 38 years old; Weitzen is 44.

Weitzen, who is also resigning his seat on Gateway's board, joined the company in January 1998 as president and chief operating officer. Weitzen was previously an executive vice president at AT&T's business markets division.

"We have worked very hard over the past three years to transform Gateway in ways that would ensure its long-term success," Weitzen said in a statement. "I am proud of the work we've done and of all that we've achieved, and I am really looking forward to spending more time with my wife and family. I wish Ted and the entire Gateway family the best."

Weitzen's contract, signed in December 1999, calls for a multimillion-dollar severance package if Gateway terminates his employment without cause or if Weitzen leaves "for good reason." The package includes a vesting of all options and a lump-sum payment of three times Weitzen's salary and bonus.

According to the latest proxy statement filed with the Securities and Exchange Commission, the amount of the lump sum payable to Weitzen under the contract was $4.38 million as of Dec. 31, 1999.

It was not clear whether his departure will trigger that provision. Spelich would not comment on the financial terms of Weitzen's departure.

When Weitzen first came to Gateway, he was given responsibility for directing the company's sales, marketing, manufacturing, engineering and worldwide business operations.

At the time, the company was recovering from financial losses in the third quarter of 1997.

Jeffrey Weitzen In particular, Weitzen placed particular emphasis on marketing and product bundling. He has been credited as one of the driving forces behind expanding the Country Store concept, which gave Gateway its own retail presence. The company was also one of the first major PC companies to begin to drive revenue from selling Internet access and for selling training, software and other peripherals through its YourWare program.

The crowning achievement of this process was a complex alliance with America Online signed in October 1999. Under the deal, AOL invested $800 million in Gateway, and the two companies embarked on an effort to develop new types of Internet appliances.

At the same time, Weitzen restructured management at Gateway, bringing in tenured corporate managers, analysts have said. He was also instrumental in moving company headquarters from South Dakota to San Diego to improve recruiting.

His exit comes amid sinking fortunes at Gateway, said Ashok Kumar, analyst at Piper Jaffray. Gateway has been hit especially hard because, like Apple, its business primarily lies in the consumer segment. It cannot balance consumer weakness with business PC sales. On Thanksgiving weekend, for instance, Gateway saw a 30 percent decline in sales from the same period the year before, the company said.

"The question is, do they have a terminal disease?" Kumar asked. "The prognosis is not good, given their heavy dependence on the consumer market and on top of that the U.S. market."

The company's beyond-the-box strategy to derive more revenue from services has not worked, he added. In 1997 and 1998, Gateway was often growing at double the market rate, according to studies from IDC and others. In recent quarters, Gateway's growth in PC shipments has been on par with or below the overall industry. Because of eroding prices, Gateway's profits have suffered.

IDC analyst Roger Kay said Gateway wasn't prepared for a downturn.

"Gateway was well-positioned for a boom in the consumer market. But when the consumer market tanked, they were in a poor position. I think Weitzen is taking the fall for that," Kay said. "I think Ted Waitt noticed a big drop in his personal (share) value, and that got his attention, so he wanted to get back in management to try and turn that around."

Technology Business Research analyst Brooks Gray said Weitzen may have been shown the door because of Gateway's disasterous fourth-quarter results. But Gray questioned whether Waitt could have staved off the fast erosion of Gateway's financials.

"Weitzen understood that transitioning to a beyond-the-box model was a necessity to ward off declining hardware margins," Gray said.

"In the short time frame he had to work with, it's tough to place the blame. Ted Waitt's timing couldn't have been better though--out at the top and in at the bottom. Waitt will face many challenges during the year 2001 as hardware margins continue to decline and U.S. consumer demand remains shaky," Gray added.

Although Gateway's financial dilemma has been public knowledge, Kumar said, Weitzen's departure comes as a surprise.

"Ted and Jeff had a pretty good relationship," Kumar said.

News.com's Michael Kanellos and Joe Wilcox contributed to this report.