Powering Up At eMachines

How did Wayne Inouye turn a reviled, money-losing PC maker into a winner?

When Wayne R. Inouye took over as CEO of faltering consumer-PC maker eMachines Inc. in March, 2001, he figured that to understand how to fix the company, he needed to answer calls from irate customers personally. One of his first calls came from a volunteer at a church that had purchased six eMachines. The desktop PCs -- which sold for under $800 apiece -- were fantastic bargains, but one didn't work at all. When Inouye explained who he was, the woman's pique turned to pity. "She started praying for me on the phone," he recalls. "I was raised Buddhist, but I appreciated it anyway."

Inouye needed a little divine intervention. When he took over, the Irvine (Calif.) company had just ended a year in which it had lost $219 million on $684 million in sales. It was reviled by customers for its buggy PCs and horrendous service. And just after Inouye joined, eMachines' stock was delisted from NASDAQ. Analysts assumed that Inouye, who had become wealthy as head of the computer-retailing division at Best Buy Co., would liquidate the company and fulfill his dream of retiring to play golf.

But the 51-year-old Inouye wasn't ready to put himself -- or eMachines -- out to pasture. After eMachines Chairman John Hui took the company private in a $161 million buyout, Inouye delivered a turnaround that's just short of miraculous. In the midst of the tech industry's worst-ever slump, he overhauled everything from PC design to demand forecasting. He cut expenses by outsourcing manufacturing and relying on retail partners to market his products. The payoff: The company is on track to pull in $1 billion in sales this year, up 33% from last year, and has been profitable for eight quarters, Inouye says. This summer, eMachines elbowed aside Gateway to take the No. 3 position in IDC's rankings of desktop PC makers, behind Dell and Hewlett-Packard.

With the company functioning smoothly at last, Inouye's goal is to expand out of the ultra-low end of the market. This spring, eMachines reentered the notebook PC business with a $1,250 model. Now, Inouye plans to debut a family of notebooks -- the PC industry's fastest growth segment. His goal is to double revenues to $2 billion by 2005, partly by convincing consumers that the brand isn't just for penny-pinchers anymore. Making the transition won't be easy. "It's very hard to move from the value side to the premium side. People will assume there's a trade-off in quality," says IDC analyst Roger Kay.


Still, Inouye stands a good chance of keeping eMachines' momentum going. Analysts say anything he achieves with higher-priced PCs will be gravy on top of his successful, fast-growing core business. Large PC players will struggle to sell machines so cheaply. "They offer something you can't get anyplace else: a low-cost entry-level machine that provides a lot of value," says analyst Stephen Baker of market researcher NDP Group Inc.

Inouye is a prototype for the kind of analytical, detail-oriented executive required in today's narrow-margin PC business. At Best Buy, he was frustrated by PC makers who would guess what buyers wanted without much feedback from customers or retailers. So at eMachines, his team collects reams of detailed data from each retailer on what features were most popular and how much customers were willing to pay for them. The company updates the data weekly and uses the information to decide when to introduce new computers and what features to include.

Inouye's attention to detail borders on the obsessive. He prepares for meetings by reading market research and memorizing the facts he knows will come up in discussion. He's so fastidious that there's not a scrap of paper in sight in his office. Off the job, he drinks his morning cup of coffee in the exact same spot in his house every day, and he cleans his golf clubs after each stroke. "We call him Wayne Man," says his daughter Lauren, 23, after the character in the movie Rain Man who had a gift for numbers but got upset if his routine was changed.


Lauren's dad built his reputation as a number cruncher at Best Buy. In the fall of 1996, he persuaded CEO Bradbury Anderson not to stock as many PCs as usual for the holidays because a new generation of technology was planned for early the next year. He was concerned that consumers would delay their purchases and leave Best Buy with tons of unsold inventory. The company ran out of PCs in November, but, "we would have had a significant loss if Wayne hadn't pushed the alarm button when he did," Anderson says.

Inouye's aversion to risk was shaped by his childhood. His parents were detained in internment camps during World War II. Inouye's father, George, captured the experience in photographs but didn't talk much about it with his four children. "The Japanese-American philosophy is to remember the past but not to dwell on it," Inouye says. After the war, his parents bought a farm in Yuba City, Calif., an hour north of Sacramento. "Farming was a tough life," says Inouye, who began driving tractors and working the fields when he was 7. "We'd have money one year and be flat broke the next."

Inouye was studious, but he also had a a wild streak. As a seventh grader, he taught himself blues guitar after hearing the Paul Butterfield Blues Band on the radio. His parents hoped he would be the family's first doctor. He obliged by studying biology at the University of California at Berkeley, but after two years he dropped out to join a blues band. When the band broke up, he scraped together a meager living by working at music stores and selling vintage guitars out of his car.

Those early work experiences as an itinerant guitar salesman infused him with a sense of confidence that has remained. At 20, he talked his way past security guards at the renowned Winterland concert arena in San Francisco and began hawking his guitars to the likes of the Grateful Dead and Joni Mitchell. He once shelled out $550 for a vintage Fender Stratocaster and sold it to the Beach Boys for $1,500. Although Inouye soon opted for a more secure career in audio stores and then at Best Buy, he has never forgotten the key lesson he learned while cultivating his rocker customers: "It doesn't matter how powerful people are," he says. "If you give them a reason to support you, they will."

Now, Inouye is relishing the challenge of winning customer support for his soaring ambition at eMachines. "I'm having so much fun," he says. "Crazy as it sounds, the computer business has been good to me." These days, that puts him in rare company.

By Arlene Weintraub in Irvine, Calif.

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