Gateway Closes eMachines Merger

Doug Olenick -- TWICE, 3/12/2004

Poway, Calif. — Gateway completed its acquisition of eMachines today with the final price tag reaching the $280 million range.

The deal, which was announced on Jan. 30, has entry-level PC maker eMachines being fully absorbed by Gateway. With the merger completed, Gateway founder and CEO Ted Waitt will officially step aside as chief executive, making way for eMachines CEO Wayne Inouye to take over the post. Waitt will remain as Gateway’s chairman of the board.

Gateway believes it will become profitable by 2005. No additional personnel changes were announced, but a company spokesman said the integration of the two firms has not been complete. Additional news on this topic should be forthcoming in the next few months.

Gateway plans to use eMachines’ existing retail partnerships to sell Gateway’s growing line of CE products outside of the company’s traditional direct-sales operation and its Gateway Stores. Company executives have stated that there is a definite possibility of channel conflict if Gateway-branded products sell outside the company’s own stores and online operations, but Waitt hopes that with careful planning and product placement this problem can be sidestepped.

The merger of Gateway and eMachines’ PC segments is expected to go smoothly. With the expected increase in PC sales this year predicted by industry research firms NPD, IDC and Gartner, this could prove to be a profitable area for the newly combined company. With eMachines under its belt Gateway should now become the third largest PC manufacturer.

The brands will remain separate, with Gateway computers selling through its retail stores and direct-sales operation, and eMachines through retailers like Best Buy, Circuit City and CompUSA.

The new company will ship about 4 million PCs per year, the executives said.Waitt and Inouye have said that they consider the two PC brands to be complementary.

Gateway’s most profitable segment is selling higher-end desktops and notebooks, while eMachines excels in the sub-$800 arena. Additional savings are expected in this area because the newly combined company will be able to buy PC components in even larger quantities.

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