In an effort to rebuild both its business and its damaged credibility on Wall Street, Gateway (GTW Quote - Cramer on GTW - Stock Picks) is cleaning house.
Chairman Ted Waitt unveiled his new management team Tuesday morning, less than 24 hours after Gateway
announced that Waitt was taking over Jeff Weitzen's job as chief executive. The company appointed Bart Brown as senior vice president of its
Gateway Consumer division, thus sending Cliff Holtz off "pursue other interests." Dave Russell was named senior vice president of supply chain management, a key position in the company's effort to keep pace with
Dell (DELL Quote - Cramer on DELL - Stock Picks) in cutting costs. Meanwhile, Joe Burke has taken over the job of chief financial officer, replacing John Todd. Burke, Brown and Russell are all Gateway insiders.
The moves come after a
miserable fourth-quarter that helped take about 60% off the company's value since November.
The biggest news is the departure of Todd, a former
Boston Chicken executive who oversaw the rapid expansion of Gateway's lending business. Though it has never told investors how much of its sales were tied to financing, Todd had called consumer lending one of the fastest growing parts of its business, saying the company and its banking partners expected to do about $3 billion in financing in 2000, with Gateway originating about 20% of that sum, or $600 million, on its own.
Worrying
The financing business is certainly an integral part of the company's beyond-the-box strategy. And Gateway's defenders have defended it as tool for customer retention, with the steady flow of monthly bills helping the company monitor customers and know when they need upgrades. Critics, however, have worried about the
quality of business that financing has brought Gateway. With low monthly payments and interest rates of more than 20%, a cooling economy could put pressure on that sort of consumer business, resulting in defaults.
Under Todd, Gateway hasn't disclosed the details on the provisions it makes for loan losses. The company's federal filings show that financing receivables increased to $592 million in the third quarter, more than doubled from the prior year. Given the disaster that the fourth quarter has turned out to be, it's reasonable to conclude that figure is even higher now.
A Gateway spokesman said that the current transition prevented him from getting more current information on the company's lending business. "When it becomes material, it becomes reported in accordance with the law," he said.
Investors uncomfortable with Gateway's tight-lipped style under Weitzen and Todd are unlikely to be disappointed with the changing of the guard. Most feel that Waitt's reputation as a plain dealer, heavily promoted by the company, is well deserved.
"I disliked the lack of openness under Jeff Weitzen and John Todd," says Fred Hickey, editor of the
High Tech Strategist. "You just sensed it on the conference calls. Waitt was always more open. I never criticized him for not being open." (Hickey has no position in Gateway.)
Standing for Quality
On the conference call Gateway hosted Tuesday morning, new CFO Burke seemed to gesture toward the sentiment of openness. "Gateway will stand for the proposition of quality earnings and maintaining ultimate credibility with all of our publics," he said. "When we have good news, you'll all hear it at the same time. When we have bad news, we'll tell you as early as we can."
For his part, Waitt touted the new team's ability to do what Weitzen and Todd couldn't: react quickly to deteriorating demand. "My number one job was to get a team in place that I felt could succeed in this environment," he said. "A faster, more aggressive, more experienced team." Waitt vowed to fight for market share by cutting prices. He vowed to control expenses by reexamining any additional store openings the previous team had planned. He vowed to maintain "a
maniacal focus on customer satisfaction and quality."
The company's call lasted only about 10 minutes, with Waitt and his new team taking no questions from analysts. It wasn't time for that yet, he explained. They had to go learn the business ahead of the company's upcoming meeting with analysts.
Investors are waiting to see what they learn. On Tuesday, Gateway's stock sank 68 cents, or 3.1%, to $20.98.
Thomas Lepri
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