Tech Industry

Gateway CEO Inouye resigns

update Wayne Inouye steps down abruptly after the company's mixed returns for the fourth quarter.

A correction was made to this story. Read below for details.
update Wayne Inouye, CEO of Gateway since its merger with eMachines two years ago, has resigned as the company focuses on building up its direct sales to consumers and to professional markets.

Rick Snyder, Gateway's board chairman and a former company president, will serve as CEO until a permanent replacement is found, the company announced Thursday.

The sudden resignation of Inouye, to pursue other interests, comes in the midst of a rebound for the company. In 2005, Gateway saw its market share in the U.S. rise to 6.1 percent, making the company the third-biggest PC maker in the country. Shipments in 2005 grew by 33 percent, one of the fastest rates in the United States (where Gateway sells the vast majority of its PCs).

The problem is that the gains have mostly come through selling low-price retail machines, and Gateway wants to expand its government and business sales.

Wayne Inouye Wayne Inouye

Inouye, who became Gateway CEO after the March 2004 acquisition of budget PC maker eMachines, also stepped down as a Gateway director. He will, however, serve as a company adviser during the transition.

"Under Wayne, our retail business has done well and will continue to do well, and we're proud of that fact. We also got the company back to a break-even point," Snyder said during a conference call with analysts. "We're excited to continue to build the team and resources to take us to the next level with our professional and direct businesses."

Inouye, who came to Gateway as CEO of eMachines, successfully pushed the computer maker into the retail market. As a former executive of electronics retailing giant Best Buy, Inouye was able to get eMachines and Gateway computers onto store shelves of major retailers, expanding the company's presence beyond its direct-sales roots.

Gateway's board recently approved its 2006 annual operating plan that Inouye had submitted, and it will remain intact, Snyder said. He noted, however, that the company is particularly interested in finding ways to improve its performance in direct sales to its consumer and professional markets.

"On the direct and professional side, the financial results speak for themselves. Our direct business was not growing and flourishing," Snyder said. "We want people to look at Gateway, especially on the high end, as a value, and also bring back services and support."

Rick Snyder Rick Snyder

In the fourth quarter, Gateway reported a mixed financial performance.

The company sold nearly 1.36 million PCs during the three-month period, up 13 percent from the year-earlier period. The gains, in part due to its retail performance, made Gateway the second-fastest-growing PC company in the U.S. year over year, according to IDC.

But revenue from its direct-sales efforts fell 39 percent in the fourth quarter, to $115 million, compared with a year earlier. That was attributed to failed marketing efforts to drive sales and the discontinuance of consumer electronics.

Professional sales declined 9 percent in the quarter to $217 million, compared with a year earlier, due to lower unit sales and declining average unit prices.

During its more successful periods with its direct sales, Gateway also offered educational training in PCs to consumers, and to small and midsize businesses, he said.

Gateway will also look to bring the "sparkle and excitement" back to its product line and services, Snyder added.

Ted Waitt's vision
The company's charismatic founder and largest individual shareholder, Ted Waitt, may be called upon for his ideas but will not be asked to rejoin the company.

"Ted is basically retired from the company. And as the founder of the company, we will treat him with respect," Snyder said. "We may tap him for his vision...and hope he would be excited about helping."

Under Waitt, the company entered the consumer electronics market with its plasma TVs and digital cameras, as well as developed a network of retail Gateway Country stores. The company, however, has since exited those areas.

"There is no intention to expand back into the consumer electronics (business) and get back into


Correction: This story incorrectly described the trend in Gateway's market share. In 2005, the PC maker's market share rose to 6.1 percent.

He said company plans to continue with its push into the retail market and believes it will be able to sustain its progress, given that the head of its retail efforts will remain with the company.

The board and Inouye have been engaged in discussions about his departure over the past several days.

"Over the recent days, we began a constructive discussion and here we are today. Wayne chose to resign, and we are moving ahead with the company," Snyder said.

During his tenure as CEO, Inouye brought profitability back to the PC maker. Last August, the company posted its first quarterly profit, after 13 consecutive quarters of net losses.

But the company's stock has fallen nearly 64 percent since it traded at nearly $7 a share in late 2004. Gateway shares closed at $2.51 in regular trading Wednesday.

As part of Inouye's severance package, the former CEO will receive $720,000, which is equivalent to one year of his base salary. And if Gateway pays bonuses to its executives in the first quarter, he will receive a pro rata portion, according to Gateway's filing with the U.S. Securities and Exchange Commission.

Inouye has also agreed to a noncompete arrangement with Gateway that will last through the end of this year, according to the filing.

cameras," Snyder said. "We are focused on being the best PC company."

Snyder is chief executive of Ardesta, a venture capital company he co-founded in 2000. Ardesta, based in Ann Arbor, Mich., focuses on nanotechnology, microelectromechanical systems and microsystems.

Snyder is a familiar face at Gateway. He joined the computer maker in 1991 as an executive vice president and a board director, later assisting Waitt in taking the company public.

He was promoted to president and chief operating officer in 1996 but resigned from the company 18 months later. Despite that, Snyder has remained on the board.

Snyder said he will be focused on working with Gateway's management team and offering direction to the company on an interim basis. But if asked to serve as CEO on a permanent basis, he said he would have to consult with his family on whether he could make such a move.

"I would have to talk to my family...I was approved for this (interim) position. They said it was OK for me to come back and do this job," Snyder said.