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Gateway Computer to Eliminate Another 1,500 Jobs

Posted on: Friday, 30 April 2004, 06:00 CDT

By ELLIOT SPAGAT

SAN DIEGO (AP) -- Wayne Inouye made eMachines Inc. the fourth-largest personal computer seller in the United States with only 140 people on his payroll.

So few are surprised he is wielding the ax at his new employer - computer and electronics seller Gateway Inc. (GTW) On Thursday, Poway, Calif.-based Gateway said it would cut another 1,500 jobs, less than a month after it closed its 188 retail stores and eliminated 2,500 positions.

Gateway expects to end the year with about 2,000 employees, down from 7,400 at the end of last year and 24,600 at the end of 2000.

"This is a process that really never ends," Inouye said in an interview, when asked if Thursday's announcement marked the end of job cuts. The latest round of cuts came as Gateway posted its 13th loss in 14 quarters. An aggressive push into consumer electronics last year has failed to halt the slide.

Inouye joined eMachines in 2001 as chief executive, engineering the then-struggling company to nine straight quarters of profits by selling inexpensive desktops at Best Buy Co., his former employer, and other big retailers. When Gateway bought eMachines in March, Inouye became chief executive, replacing founder Ted Waitt, who remains Gateway's chairman.

There are limits to Inouye's go-lean approach, said Jennifer Gerlach of Current Analysis, a market researcher in Sterling, Va.

Gateway has a much broader product line than eMachines, with gizmos ranging from flat-panel televisions to digital cameras. Unlike eMachines, Gateway caters to corporate, schools and government customers and does some built-to-order work.

"They want to compete with Dell and (Hewlett-Packard) in a couple different categories and I don't see how you could possibly do it with 300 employees," Gerlach said.

Gateway said Thursday that it would "simplify" its offerings but stopped short of detailing any specific product cuts. eMachines will sell low-cost PCs; Gateway will offer consumer electronics and higher-priced PCs.

Gateway didn't say which departments would be affected by the job cuts. A spokesman, Robert Sherbin, said they would be spread across all locations. The company has significant operations in North Sioux City, S.D., Kansas City, Mo., and Lakewood, Colo.

Gateway posted a preliminary loss of $165.5 million, or 49 cents a share, in the first quarter, compared with a loss of $200.5 million, or 62 cents a share, the same period last year. The latest period included charges of $81 million for store closures and $23 million in other restructuring expenses, related primarily to outsourcing, and a tax benefit of $13 million.

Excluding those items, Gateway posted a loss of $75 million, or 22 cents a share. Analysts polled by Thomson First Call projected a loss of 20 cents a share.

Revenue rose 2.8 percent to $868.4 million from $844.5 million, fueled by the acquisition of eMachines. Gateway sold 604,000 PCs during the quarter, up 19 percent from last year.

Gateway said it will revise results by May 10 to reflect settlement talks on tax and unspecified legal issues.

With its stores gone, Gateway has yet to detail where it will sell its products.

The company said only that it was "very encouraged" by discussions with potential distributors and that it would establish a strong retail presence by the fourth quarter, in time for the crucial holiday sales season. Gateway said the store closures will cut revenue by about $300 million per quarter and trim expenses by $60 million.

Inouye has stacked his management team with eMachines veterans, resulting in the departures of several key Gateway executives.

Joe Formichelli, who helped overhaul Gateway's manufacturing and distribution last year, said his parting words of advice to Inouye were to cut costs quickly.

"I don't envy his job," Formichelli said in a telephone interview from home. "I'm glad I'm sitting here with my gin and tonic."

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