Gateway CEO Resigns Post

The abrupt resignation of Gateway Inc. Chief Executive Wayne Inouye raised concerns Thursday that the computer maker’s turnaround strategy may be faltering just as competition in the PC industry turns increasingly cutthroat.

Inouye, who took over Irvine-based Gateway after its 2004 acquisition of EMachines Inc., quit Wednesday “to pursue other interests.” Neither Inouye nor Gateway would elaborate, but analysts speculated that the surprise departure signals that the board of directors might have been dissatisfied with Inouye’s emphasis on retail sales.

The 53-year-old Inouye presided over a reorganization plan that boosted Gateway’s presence in retail stores such as Best Buy Co. Revenue rose steadily and last week Gateway reported its first annual profit since 2000. But its corporate business and direct sales to consumers disappointed investors.

“Clearly when you have half of the business performing well and the other half not well, I’m sure the board was frustrated and Wayne was frustrated as well, and they decided to part ways,” said analyst Bill Fearnley Jr. of FTN Midwest Securities.

Gateway Chairman Richard Snyder will serve as interim CEO while the company searches for Inouye’s successor, which Snyder said might last until late summer.

Fearnley said the search could distract Gateway and give rivals such as Hewlett-Packard Co. and Dell Inc. an opportunity to grab market share.

“Competitors can come in and say, ‘This is who we are and we’d like to do more business with you,’ ” Fearnley said. “It opens up the door to Lenovo [Group] and Acer. The channels are looking for an alternative to HP, so they look at folks like Gateway, and the same for Lenovo and Acer.”

Dell and HP are the world’s two largest PC makers, with 33.5% and 19.4% of the U.S. market in 2005, according to technology market researcher IDC. Gateway was third with 6.1%, followed by Lenovo Group Ltd. -- which acquired IBM Corp.’s PC business last year -- Apple Computer Inc. and Toshiba Corp.

In the global PC market, however, Lenovo and Acer Inc. are third and fourth behind Dell and HP.

Across the industry, margins are being eroded as prices fall.

Those pressures were squeezing Gateway when Inouye joined the company in March 2004. Previously the head of EMachines, Inouye immediately began reshaping Gateway, founded as a mail-order PC maker in an Iowa farmhouse in 1984.

Inouye closed Gateway’s nearly 200 retail stores, fired thousands of workers and moved the corporate headquarters from the San Diego suburb of Poway to Irvine. Considered a shrewd retail strategist, Inouye worked for 15 years for electronics retailers Best Buy and Good Guys Inc. and pushed Gateway’s products into those chains.

“It was his decision to resign,” Gateway’s Snyder said. “Wayne had a couple-year tour here where a couple of major things were accomplished.”

Analysts say Gateway needs a leader who can maintain momentum with consumers but jump-start its sales to businesses and schools.

“Diversification is critical for future growth of the company,” said David Daoud, a PC analyst with IDC. “They’ve done very well solidifying position in the consumer market, but what they need to do is go beyond that, expanding into the commercial sector, and pay attention to growth markets outside of the U.S.”

Snyder is a former Gateway executive, joining as executive vice president and a board member in 1991. He helped take Gateway public in 1993 and was named president and chief operating officer in 1996. He left those posts in 1997 but had remained on the board before being named nonexecutive chairman in May.

He is co-founder of technology developer Ardesta in Ann Arbor, Mich., where he lives. Snyder said that last year he spent a few days a month at Gateway facilities in Irvine, Kansas City, Mo., and North Sioux City, S.D., but that he would be spending more time in Irvine in the coming months.

“I’m the right person to do this, given my background and the people available, and because of the skill sets I’ve developed before and my legacy with the company,” Snyder said.

Gateway shares fell 5 cents, or 2%, to $2.46 on Thursday, and an additional 3 cents after hours. The announcement came before the market opened.