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Wayne Inouye Came Out on Top at Gateway Inc.

IRVINE — 2004 was a triumphant year for Wayne Inouye.

After turning around low-cost computer seller eMachines Inc., Inouye engineered the sale of the Irvine company to Gateway Inc. for $266 million.

The deal alone, which culminated years of rebuilding eMachines, would have made Inouye a contender for the

Orange County Business Journal

‘s businessperson of the year for 2004.

What happened next made Inouye a slam-dunk for the honor.

By the time the eMachines buy closed in March, Inouye was running Gateway with his own hand-picked executive team, largely from eMachines. He took over from Gateway founder Ted Waitt, who’s now chairman.

Then in September, Inouye moved Gateway from the San Diego suburb of Poway to Irvine, bringing Orange County another Fortune 500 company.

On a personal note, Inouye (pronounced in-u-way) put the finishing touches on a new spread in Irvine’s posh Shady Canyon golf community.

It’s hard to imagine how things could have gone better for a guy who once worked on his family’s farm in the California desert town of Yuba City.

But Inouye doesn’t have time to reflect. Ending up on top at Gateway was just part of the battle. Repeating his success righting eMachines at struggling Gateway now is the challenge.

“This has been the hardest year of my professional life,” Inouye said, leaning back in his chair during a recent interview.

Inouye rattles off a list of events that have usurped time he would have spent on the golf course.

At the top of the list is combining two company cultures: the more scrappy, self-empowered spirit of eMachines and the informal yet big-company way of Gateway.

“I rarely go golfing anymore,” he joked, gazing off to one of the sparse walls in his corner office at Gateway’s Irvine headquarters.

Inouye is a no-nonsense executive adept at much bigger tasks than decorating an office. He keeps modest digs, with only a few pictures, mostly of family, adorning the walls.

That changes downstairs in Gateway’s front lobby, which really is a giant ode to Gateway’s humble beginnings on the family farm of Waitt, who started Gateway in 1985. Old advertisements for Gateway PCs, photos and relics of the first Gateway products adorn display cases.

In one display case, two Gibson guitars,one labeled Gateway and another eMachines,face each other. The display testifies to Inouye’s own hobby as a blues guitarist. It’s also designed to give the impression the two companies will make music together.

But it’s unclear whether Gateway,which hasn’t made money for three years and recently warned it would see a larger than expected drop in first-quarter sales,is in for the same sort of turnaround as eMachines.

Gateway is bigger, for one. It’s going up against Dell Inc. and Hewlett-Packard Co. A new rival looms with IBM Corp.’s pending sale of its personal computer business to China’s Lenoro Group Ltd.

Inouye is undaunted.

“Two years from now, I will look at Gateway as a very successful company with much greater share than it has today,” he said. “Over a four-year period, I’d like to be a $10 billion company. It’s not going to come easy, but that is our goal. I’d like to be generating around half a billion in operating profit.”

That’s a tall order for Gateway, which hasn’t been near $10 billion in yearly sales since 2000. For 2004, the company expects $4 billion in sales.

Inouye said he expects to earn a profit when fourth-quarter results are out later this month. But that’s largely thanks to non-recurring items.

What is clear,to Gateway’s founder, board and shareholders,is that Inouye probably is the man to do the job.

When he took over eMachines in 2000, the discount PC maker had an abysmal reputation for customer service.

EMachines, which sought to revolutionize the PC industry when it started in 1998, was losing $130 million a quarter when Inouye left a good job at Best Buy Co. to run it. The company was in danger of shutting its doors.

Inouye worked furiously to change the company’s customer service, going so far as to tell his call center operators to send the worst customer complaints to him so he could resolve them himself.

Eighteen months after taking over, Inouye virtually reversed the company’s reputation with a free yearlong warranty, technical support and newly designed computers with quality parts.

As with Waitt at Gateway, Inouye was recruited to eMachines by dominant figure, Lap Shun “John” Hui, an entrepreneur who took eMachines private in a $160 million buyout in 2002.

Waitt led Gateway up until 1999, when he handed the reins to longtime lieutenant Jeff Weitzen,only to fire him a year later and retake the job.

Sales and profits steadily declined under Waitt, who long had expressed his desire to retire to the good life.

“There was a series of discussions,” Inouye said of the runup to Gateway’s buy of eMachines.

Inouye said initial talks between he and Waitt started in fall 2003.

“They all culminated to what I thought was a logical, rational conclusion very quickly,” Inouye said. “We announced our intent to merge in January and the deal closed in March. That was record time.”

Now the deal is the “distant past,” according to Inouye.

Righting Gateway won’t be the same as righting eMachines, he said.

“Gateway is more difficult,” he said, pointing to Gateway’s multiple lines of business.

EMachines sold to home computer buyers through stores. Gate-way not only sells to consumers but to small businesses and schools.

But Inouye stops short: “On the other hand, eMachines didn’t have the brand Gateway does. So, in some respects, it’s easier to get people’s attention because people have top of mind awareness.”

Within weeks of becoming chief executive, Inouye shut Gateway’s 188 stores and started layoffs that would reduce the company’s headcount from 7,600 people to fewer than 2,000. He stopped selling televisions and other consumer electronics to focus on computers.

Given Inouye’s love of OC, it’s of little surprise he chose to move the company’s headquarters here,even though the bulk of Gateway’s workers lived in San Diego.

Some company watchers predicted the opposite,that Inouye would move to Poway. But Inouye said he never considered moving south.

Asked whether there was something that tipped the scales toward OC, he said, “I won’t put one against the other.”

Scarcely a minute later, Inouye lets it slip: “Do they have a show on Fox called San Diego?”

To his credit, Inouye has gone to great pains to make the move easier on the San Diegans who’ve had to move or drive to Irvine.

The company has a shuttle that goes from the Irvine headquarters to the city’s train station. Workers also give each other rides through a formal carpool program. Gateway sponsors all of it.

The effort is a matter of course for Inouye, who said he encourages office friendships and togetherness.

The primary difficulty for Inouye will be how Gateway distributes computers. Gateway once sold computers directly to consumers through the Internet and a chain of stores.

Since closing the company stores, Inouye’s switched Gateway’s strategy over to the one he instituted for eMachines,selling hard through retailers such as his old employer Best Buy as well as CompUSA and others.

Two weeks ago, the company announced a deal with Circuit City.

A big concern for Inouye is how to manage the two brands. Inouye is the first to say Gateway’s brand often is thought of as a “premium” brand, whereas eMachines is a “value” brand.

“When people have gotten used to being treated a certain way and that level of service declines, then sometimes it’s hard to rebuild the trust,” Inouye said. “Plus, there is a certain level of expectation that the customer has associated with the brand.”

If Inouye succeeds, he’ll have solidified a burgeoning reputation as a turnaround artist. He’s already been the man of the hour. Following Inouye’s ascension to chief executive, he became something of a media sensation. Throughout the summer and into the fall, Inouye did a lot of media visits, including the

Wall Street Journal, Forbes, BusinessWeek

and others.


Andrew Simons writes for the

Orange County Business Journal

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