March 2, 2004 10:59 AM PST

Gateway to cut more jobs

Gateway expects to reduce its employee roster by about another 1,000 this year, but the action is not related to its acquisition of eMachines, it says.

Rod Sherwood, Gateway's CFO, told attendees at Morgan Stanley's Semiconductor and Systems Conference late on Monday that the company expects to continue reducing its employee count and is aiming to end up with a roster somewhere in the mid-5,000s. It finished 2003 with about 7,400 employees.

Right now, the Poway, Calif.-based company has about 6,500 employees, a representative said on Tuesday. Going by Sherwood's figures, this implies that Gateway is planning to shed about 1,000 more employees this year.

Despite the timing of the news--Gateway is expected to close its acquisition of eMachines by as soon as Monday--the changes cited by Sherwood reflect restructuring efforts that stem from measures Gateway took last September to streamline its manufacturing, service and support and distribution organizations, the company representative said. Part of that action included closing down its PC manufacturing plant in Hampton, Va., and outsourcing its manufacturing of consumer PCs to a third party.

Gateway has not yet said how the eMachines buy, announced Jan. 30, will affect its operations, other than in very broad terms. It said in its 2003 annual report, for example, that it expects eMachines to help it tap several new sales channels, including international markets.

But many analysts believe that once the eMachines acquisition closes, Gateway will abandon its namesake stores in favor of relationships with third-party retailers, which it will acquire along with eMachines. Analysts also expect Gateway to continue selling Gateway-brand products, including PCs and consumer electronics, direct to its customers as well.

Gateway has declined to comment on any potential changes before the close of the sale, including what might happen to the stores.

"It's too early to comment on stores right now, but as we work through the details of our channel and brand strategy, we'll continue to evaluate (Gateway) stores both individually and as a channel to ensure that they're contributing to our growth, cost reduction and profit goals," said Brad Shaw, a spokesman for Gateway, on Monday.

Gateway did close 82 of its stores in 2003, as part of its efforts to cut costs. But the company also went to the effort of remodeling its remaining 190 outlets to help showcase its consumer electronics products. Gateway had a maximum of 326 stores at one time.

Although Sherwood said that the acquisition may close early next week, on or about March 8, it still may take some time for the company to formalize its plans and then announce them, the spokesman said.

Separately, Gateway has disclosed that it will pay Wayne Inouye, its new CEO, $720,000 per year and also award him 10 million stock options, which will vest over four years and whose strike price will be set at the time when the deal closes, the spokesman said.

Inouye, now eMachines' CEO, will take over from current chief Ted Waitt after the acquisition is complete. Waitt will become the company's chairman.

 

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