Newsmaker: Putting the sparkle back into Gateway

Can Wayne Inouye succeed where Ted Waitt could not?

That's the question making the rounds on both Wall Street and Main Street these days, as Inouye attempts to revive the momentum at this former high-flying computer maker.

Inouye became Gateway's CEO in March, after Gateway's acquisition of eMachines. It was an interesting match, bringing together two corporate cultures from two vastly separate geographies: Gateway hails from the plains of South Dakota, while eMachines got its start in Southern California. The company will make its new headquarters in Irvine, Calif.

Inouye's first order of business was to cut excess costs and refocus the combined company's businesses. He has since ordered the closing of Gateway's 188 retail stores, a perennial money-losing operation that failed to meet the original lofty expectations. Gateway has since inked an agreement with Best Buy to carry Gateway's PCs, one of a series of retail partnerships Inouye intends to pursue as he seeks to extend the company's nationwide and worldwide coverage.

Inouye also plans to temper Gateway's push into consumer electronics. The company garnered lots of headlines when it began selling consumer products such as plasma TVs in 2002. But the incremental revenue gain has failed to translate into big profit, according to Inouye. While he's not opposed to delivering what he calls "convergence" consumer electronics devices that either work with or resemble a PC, he says he wants to stick with what Gateway knows best: PCs.

CNET News.com recently sat down with Inouye in one of his first interviews since becoming chief executive.

Q: How are you going to compete against Dell, which has lower costs, and HP, which spends more on research and development?
A: I plan to create a cost structure that is lower. That's going to take some time--it doesn't happen overnight. But it will happen fairly quickly.

I plan to create a cost structure that is lower.

I think it is very important to understand the competency of your competitors and what they're good at. What we are really trying to focus on is what's going to get our customers--or potential customers--to buy from us. So if that requires R&D, then we will spend money on R&D. But in the short and moderate terms, research and development are best left with our key component suppliers.

What is your vision for Gateway?
I would like Gateway to be recognized as a global brand and certainly as a provider of very high-quality, affordable products. The near-term is centered around PC products--desktops, notebooks, servers and, in the intermediate term, convergence products.

Do you want Gateway thought of as only a PC company?
We want to break out of that and take our brand beyond PCs. That becomes trickier. I think it requires different approaches.

I think there is a distinction here. Brand personality is typically the characteristic of the company itself. You could consider us a witty, friendly offering--technology without being technical. There are certain aspects of our brand personality that I think would resonate in all channels. In terms of a PC company, that is where we came from. We built our brand and our brand recognition because we sold PCs.

How does that tie in with the vision for Gateway?
You have to have a well-defined brand that everybody fundamentally agrees on and understands. Then you build on that for the long-term vision. Will it work in different product segments? The answer right now is: I don't know. I believe it works for convergence very well. I think people who look at convergence products--products that are PC-enabled or act like a PC--would think Gateway would be a natural brand.

What will this involve, in terms of people or new investments?
All we are really doing is leveraging what has already been done. A lot of it is back to basics. When you go to a period of discovery or rediscovery, you kind of go back to what you are really good at.

As a company that has been struggling, we need to really focus on things that we are naturally good at first--get a bunch of wins under our belt and energize not only our employees but also people who buy from us.

How do you handle your dual-brand retail strategy, and how do you avoid losing market share?
That requires a lot of discipline. It's all about first defining your space in the marketplace, your relevance. eMachines was built on the value that it provides. We provide highly configured, very inexpensive products that provide an exceptional after-purchase service. I really look at eMachines as being like Toyota, and I look at Gateway as Lexus.

I really look at eMachines as being like Toyota, and I look at Gateway as Lexus.

In terms of how we will make the brand work, we have clearly positioned eMachines in the desktop area from $700 on down and Gateway from $700 on up. In the direct channels, it's a little bit different. The Gateway brand is going to have to span all the relative price points. In the direct channel, in order to compete with Dell, we have to have offers that are fairly aggressive and that fall below that $700 price point.

But can you also adopt eMachines' tactics to reduce Gateway's costs?
Well, there are two things that we can do. We are certainly leveraging our combined scale--the numbers of units we buy are greater than just one company alone--that helps us with our costs. The other thing we are doing is figuring out ways to do things less expensively with fewer people or using third parties.

How did the Gateway-eMachines merger come about?
I don't think it's all that relevant. I don't mean to skirt the issue. But the most important thing that we can do today is look forward. If you start talking about the past, everyone wants to focus on "why this happened." The fact is it has happened. It's done.

Can you elaborate on what you mean by convergence products?
I look at convergence products as products that are either PC-enabled or act like a PC--so they have some PC function with them. I wouldn't consider a DVD player a convergence product. Why? Because it doesn't require a PC to operate. An iPod, on the other hand, or a music player that requires a computer to download music or data onto a hard drive--or flash memory is a convergence product.

Let me describe a product that, simplistically, could fall into the convergence space. What if we took a satellite receiver box and put a hard drive in it? You wouldn't consider it a convergence product, because it doesn't require a PC to operate. But what would happen if you put a broadband connection on it and added an 8-in-1 media card reader? It becomes a convergence product, because it's connected to the Internet, and it acts more like a PC.

Aren't a lot of Gateway's CE products still in limbo? Also, you have said Gateway wasn't making much money selling consumer electronics.
The model that we've introduced as a company is: We build products that our customers will buy. We do not build products on speculation. When Gateway had a captive retail store, we could build products and put them in the stores and sell them. We no longer have that luxury.

Our focus to the consumer electronics area is convergence products. You could call them consumer electronics products, but they have to fall into my definition of convergence for us to focus on them. I don't want to go out and compete with Sony. I don't want to compete head-on with Matsushita and the Panasonic brand.

What about direct sales? What changes might you have in mind for that, such as bringing back the ability to configure a PC on the Web site?
We are headed back toward configurability. Frankly, I think we took our eye off the ball when it came to the Web, and we are rebuilding the architecture to allow us to truly configure to order. There are markets such as the game market in the premium desktop space that require that you offer some customization to customers. It's something that we are definitely committed to, and at this point, I will leave it at that.

Are you eyeing non-U.S. markets seriously?
International is an area that a lot of people ignore. Our ability to become a global brand does exist. American brands are widely sought-after around the world, and products that can offer greater value through either speed to market or through better configuration for the price are sought-after around the world. And with our business model, I believe that we can be competitive in just about any market in the world.

The announcement that Best Buy will carry Gateway's PCs was a big win. How did that come about, and what comes next? It came about because of a lot of hard work, and I think it came about because Best Buy, through its due diligence, intelligence, and general market power, was able to understand the value of the Gateway brand in the computer space. What it means to us is going from 188 outlets that were company-owned to more than 600 outlets. It's tremendous exposure that we could never do on our own. We are not stopping with Best Buy, so just hang on.  

More Newsmakers

Not A Chance for Gateway

With limited market share, confused brand image, no
enterprise presence and a retail partner who would rather
allow their sales people to stand around and talk to each
other versus help customers, Gateway can't possibly gain
headway in the PC arena. With dell, HP and IBM hitting their
stride and Acer determined to be a major player, GW would
have to live with under 2% SOM. Can you live off of that
witht he razoe thin margins?

2% of some billion is small?

2% of multi-billion dollar is not small for a has been pc company.
Plus, I still think Gateway is a buyable company.
Think Moo! in a box

As Yoda said, "So certain, are you..."

Gateway has a few things going for it:

1) Their hardware is not as bad as everyone makes them out to be. I ought to know: I'm both a Microsoft Certified technician and a former Gateway owner. (I build my own now.)

2) They still have brand recognition. Even Aunt Millie, who may not know her TCP from her IP, knows the name "Gateway."

3) If you think a battered and bruised OEM with a poor product line whose death has been predicted countless times by the talking heads can't make a comeback, I have one word for you: "Apple."

Hardware makers live in a feast-or-famine industry. Gateway is down, but they're not out. With some discipline, they can be a great company again.

2%

Try 5.6 % read the newest Garner Report. Besides in professional they improved the % of market share by over a precent. Dell and HPQ are getting to big for their own good, all their support is outsourced unless you pay 70 per system extra, ect,ect.. it may take a while but watch Gateway is comming back.

[Dachi]

They need a Dodge Viper.

The will never rebuild a brand image competing on the bottom level. In order to do this, they would literally have to sell PC's at a loss.

Let eMachines compete with HP and Dell on the sub $700 machines and offer a product line that competes with Alienware and Apple.

The low end PC market is saturated, build a line that appeals to gamers and enthusiasts.

If a consumer is going to get the best PC money can buy, do they think Gateway?

I would also like to see Gateway enter the printer business with a $600 printer that uses $5 commodity ink cartridges, it would eat at HP's profits.

Read this
http://marshallbrain.blogspot.com/2004/02/price-of-things-price-comparison-last.html

Ink cartridges now cost more than a microwave, and as Dell's CEO put it, ink is becoming the most expensive liquid on the planet.

It takes one major brand to enter the market selling commodity cartridges to change that.

Gateway has the _ability_ to be born again, but do they have the leadership?

Sharp thinking

Great comments. I was thinking along the lines of Gateway competing with Alienware, too.

But the inkjet printer idea is genius, baby. I've got an HP DeskJet that's dry and hasn't had fresh cartridges in a year. (Literally.) My loan didn't come through. ;) (Besides, they seem to run dry after about a month of moderate use.)

Gateway products

I bought a 4 Mpixel Gateway camera about a year ago.
It never gets the fleshtones right when shooting indoors, and loses your custom settings every time you turn off the power. I will never buy another Gateway product.

[lakingsfn2004]

Former Gateway employee here

I think the problems with Gateway all started in about 2000 when Jeff Weitzen took over the company for Ted Waitte. The quality of the product went into a downward spiral and I think that shook the customer loyalty down to it's core. After that the Gateway Country Stores had a hard time getting their trust back and that led to the demise of the stores. I know several people who were laid off from the store I used to work at and I really believe that Gateway needs to get back to making a great product, then the customer base will come back. Until then, Gateway will just be a second rate computer maker.

EMACHINES REFUSES TO HONOR WARRANTY

I purchased an emachine which went wrong. When I attempted to get them to honor the warranty, I was asked to send proof of purchase via fax. I did so. Now they say they cannot read the fax and won't honor the warranty. I asked to speak to a suprervisor - she said I should fax proof of pruchase - something I had already done. Then I asked to speak to the had of the corportation and was told Wayne Inouye was the head. I contacted the corp headquarters and asked to speak to Wayne Inouye - and was told that was not possible. End result - EMACHINES DOES NOT HONOR WARRANTY - WAYNE ENOUYE CANNOT BE REACHED AND I AM TAKING THE EMACHINE BACK TO OFFCE DEPOT BE CAUSSE WAYNE INOUYE RUN A COMPANY THAT DOESN'T HONOR IT'S WARRANTIES.

Pete Stapleton

RE: EMACHINE and WAYNE Inouye!

I feel your pain. I am going down to Irvine Corp. Office in hopes to resolve some issues in PERSON. I will let him know about your problem mr. simpleton if I actually do get to talk to this CEO in person.

[Ron Wells]

warranty coverage

I,also,had to send proof of purchase before emachine would honor warranty,but the technician agreed to send replacement drive once I got back to them.Hopefully there won't be problem with returning the old part. Having read this article beforehand, I made sure to make a very clear copy of my reciept before I sent the fax (high resolution) Maybe, it would be worth while to fax it again? Office Depot might be able to correct the date as well.

[parkerross]

Revamp Customer Service

I had been a Gateway customer since 1989, having bought three systems from them over the years. I even became a Gateway stockholder when they went public because I believed they were doing everythhing right.

That was then.... I just cancelled an order for what would have been my fourth Gateway system. Regretfully, their sales and customer service departments are in dire need of a complete overhaul and retraining in the importance of the customer to any businesses success. I had a really frustratingly bad experience over a period of several days, trying to get sales & customer service to honor one of their currently advertised sales incentives - reduced shipping $$. Their belligerence, combined with customer neglect just cost them: 1. a $1,300 sale 2. a long time customer 3. a Gateway cheerleader / advocate.

Are you listening Ted and Wayne? Do you care? Will you fix what is obviously broken? Is Gateway going to have a future? I thought I knew, but now I wonder....???