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UPDATE 3-Gateway CEO Inouye resigns; stock falls
09-02-2006 19:47 por Reuters

(Adds background, analyst comment, share movement.)

By Philipp Gollner

SAN FRANCISCO, Feb 9 (Reuters) - Gateway Inc. on Thursday said Chief Executive Wayne Inouye has resigned, a move that came after a more than 50 percent decline in the company's shares since he took over less than two years ago.

Gateway, which last year reported its first net profit since 2000, said Inouye, 53, left to pursue other interests, but it did not elaborate. Inouye, who resigned on Wednesday and had led an effort to sell more low-cost consumer computers, will be replaced on an interim basis by Gateway Chairman Rick Snyder.

Shares of Gateway, the No. 3 U.S. personal computer maker, fell 8 cents, or 3 percent, to $2.43.

Inouye helped Gateway boost sales of inexpensive computers through retail outlets such as Best Buy Co. , but the company has struggled to make headway in selling to corporate customers, analysts said.

"While characterized as voluntary, we believe his departure is likely related to Gateway's inability to reinvigorate its professional and direct businesses despite significant headway in retail, which has lower gross margins," analyst Joel Wagonfeld of First Albany Capital, which has a "neutral" rating on the stock, wrote in an investor note.

Gateway, known for its black-and-white cow-spotted boxes, in the 1990s was among the top sellers of personal computers via direct sales to consumers. But it lost market share to rivals Dell Inc. . and Hewlett-Packard Co. as PC prices fell and had only 6.8 percent of the U.S. PC market in the third quarter compared with Dell's 33 percent.

Gateway, based in Irvine, California, last week reported lower-than-expected fourth-quarter revenue. While Gateway's retail segment revenue jumped 31 percent from a year earlier, revenue from the professional segment fell 9 percent amid fewer unit sales and falling prices as competition increased.

FTN Midwest Securities analyst Bill Fearnley Jr. said he was surprised by the departure of Inouye, who he said was widely respected by investors and Wall Street analysts.

Snyder said in a statement that the company would "take this opportunity to reexamine the strategic direction of Gateway to fine-tune our products, services and approach to our professional and consumer-direct markets."

Snyder said neither he nor the board envision any immediate strategic changes in products or sales channels.

Gateway named Inouye as CEO in March 2004, after the company acquired eMachines, a profitable seller of low-cost computers through major retail chains such as Best Buy and Fry's Electronics.

Inouye, who was previously CEO of eMachines, replaced many of Gateway's key managers with executives from his former company. He also closed an unprofitable chain of retail stores, laid off workers and slashed costs.

"Investors want to hear what this means for the company," Fearnley said. "Does this mean that the company will just get a new management team? Or will it go in a new direction?"

Snyder, who was formerly president and chief operating officer of Gateway, in the statement said the company was "essentially" on the right course.

"Our employees and senior management team have a sense of urgency about improving the company's financial results," Snyder said.

Gateway said it hopes to name a new CEO by late summer.

Goldman Sachs analyst David Bailey, in a note to clients, recommended avoiding Gateway shares, noting that Gateway will be in limbo until a permanent CEO is named and that another strategy shift is likely once a new CEO is in place.

Inouye could not immediately be reached for comment.

"Wayne has done a lot of good things for the company," Snyder said on a conference call. "I think it's appropriate that that be recognized."

(Additional reporting by Ben Berkowitz in New York and Jim Finkle in Boston) ((Editing by Leslie Adler; e-mail philipp.gollner@reuters.com; telephone +1 415 677-2547))