Gateway gets fifth CEO in six years

J Edward Coleman will face the challenge of prising Gateway out of the budget end of the PC market

Gateway has tapped J Edward Coleman, a 31-year veteran of the distribution and services side of the computer business, to be its next chief executive.

He is the fifth chief executive (four permanent and one interim) in six years and, like his predecessors, will face the challenge of getting Gateway out of the budget end of the PC business. Although the company continues to ship PCs at a rapid rate, it has had difficulty churning out profit consistently.

During a phone interview, Coleman said he isn't likely to change the company's strategy in the near term, but over time will try to grow the enterprise and direct segments of the business.

He will also place more emphasis on customer service, an issue that has bedevilled Dell over the past two years.

"I come to this job with the belief that service and quality customer support [are] the key differentiators with our customers," he said. "It is a unique opportunity to lead a company that has great brand recognition and great products."

Coleman also noted that he's helped turn companies around before. As the chief executive of CompuCom Systems in the early part of the decade, he helped turn the company from being a seller of PCs and hardware for corporations to a service provider. Many of CompuCom's competitors didn't react as quickly and faded away. After CompuCom, Coleman went to Arrow Electronics, a distributor. (Before CompuCom and Arrow, he worked at Computer Sciences Corp and IBM.)

Coleman will have his work cut out for him. Over the past few years, Gateway has tried a number of different strategies — getting into consumer electronics, getting rid of its stores, selling more PCs in retail, aiming for budget customers — but it has continued to stumble when it comes to profits.

The company reported a net profit during the second quarter of 2005, its first time in the black after 13 consecutive quarterly losses. It then reported profits for the next two quarters and for the year. But so far in 2006, Gateway has lost $12.3m in the first quarter and $7.7m in the second quarter.

Nonetheless, the company still ships a large number of PCs. Gateway remains the third-largest PC seller in the US market with a 6.2 percent market share, which is bigger than Apple's. Gateway also grew shipments in the second quarter in the US, its main market, faster than Dell, HP, Apple, Lenovo and the market as a whole, according to Gartner.

During the 1990s, Gateway was one of the fastest-growing PC makers in the world. Volume shipments grew 20 to 30 percent in some quarters. Like Dell, it sold the bulk of its PCs directly to buyers, bypassing stores and integrators.

In 1997, the company almost signed a deal to become part of Compaq, which saw direct sales as a major threat.

Unlike Dell, however, Gateway always had difficulty selling PCs to businesses. Most of its customers were individuals or government agencies. As a result, Gateway was often stung by price cuts and the need to grow. In 1999, founder Ted Waitt stepped down as chief executive and brought in Jeff Weitzen from AT&T. While Gateway grew for a while, consumers began to become angry with new, relatively stringent warranty policies.

In late 2000, Gateway was one of the first manufacturers stung by the sudden decline in demand. Subsequently, it began to close stores and lay off employees. It also retreated from international markets.

Weitzen was fired in 2001 and Waitt took over again. Gateway became one of the first PC makers to move into consumer electronics. It raised eyebrows when it drastically lowered the price of plasma TVs, but the company never became a permanent rival to the likes of Samsung or Panasonic in that market. Within a few years, the company began to pare back electronics.

Then, in 2004, Gateway bought eMachines, which specialised in cut-rate PCs. Waitt subsequently resigned and turned the management of the company over to Wayne Inouye from eMachines. Inouye slashed jobs and pushed Gateway into retail.

Inouye stepped down in February 2006. Analysts said it was his inability to move into higher-margin product categories that led to his departure.

Rick Snyder, board chairman, former president and chief executive number four, came in as interim chief executive.

Then, in August 2006, Lap Shun "John" Hui made an offer for $450m cash to buy the group inside Gateway that sells PCs to retail stores. Gateway's market capitalisation hovered around $725m at the time. He was rebuffed.

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