New CEO should not impact Gateway shares

Gateway made official Wednesday what most on Wall Street and within the industry had known for quite some time

Analysts aren't expecting much of a reaction in the wake of Gateway's announcement that president Jeff Weitzen will replace the PC maker's founder, Ted Waitt, as its chief executive officer.

Gateway made official Wednesday what most on Wall Street and within the industry had known for quite some time. Weitzen, who joined Gateway in January 1998, has essentially been running the company for the past year and is considered a professional manager while Waitt was primarily viewed as a figurehead and visionary.

Waitt, who still holds 40 percent of the company's outstanding shares, will remain as chairman of the board. Weitzen will take over as CEO on 1 January. "Jeff's appointment to CEO is both a formalization of the roles we've essentially been playing for the last year and a recognition of the outstanding job he's done preparing Gateway for the next century," Waitt said in a prepared release. "I have total confidence in Jeff and the management team we've built. I'm looking forward to formalising my new role and continuing to support Jeff in the years ahead as we build on our vision to humanise the digital revolution."

Before joining Gateway, Weitzen logged 18 years at AT&T.

Gateway shares closed off 1 1/16 to 65 11/16 ahead of the news. The stock jumped more than $4 a share in after-hours trading immediately following the announcement.

Louis Mazzucchelli, a PC analyst at Gerard Klauer Mattison, said the change should have little or no impact on the stock. "It's been this way for a while," Mazzucchelli said. "Jeff's doing a tremendous job. Ted's being very gracious by stepping aside. He's still going to be heavily involved."

In its most recent quarter, Gateway beat analysts' estimates by a penny a share, raking in $113.2m (£70m), or 35 cents a share, on sales of $2.18bn.

After peaking at 84 in early November, Gateway shares have been on a bit of a slide despite announcing an $800m investment by America Online, part of the company's Internet strategy ushered in by Weitzen and other members of Gateway's new management team. "Ted wasn't an impediment to the stock price," Mazzucchelli said. "Maybe some people might have said that several years ago, but not anymore."

Robert Cihra, an analyst at ING Barings, said Weitzen's appointment fits with the company's plan to bring in someone with a background in an industry other than PCs as well as solid managerial skills. "We all knew this was coming," Cihra said. "It shouldn't have any affect on the stock in either direction. The only way this could be viewed as a negative for the stock is if there was a sense that Waitt was moving away from the company. But clearly, that's not the case."

First Call consensus expects Gateway to earn 49 cents a share in its fourth quarter and $1.43 a share in the fiscal year. Analysts are looking for a profit of $1.83 a share in fiscal 2000.

Gateway shares were trading at a 52-week low of 24 5/8 last December before rallying up to $50 a share in September. The stock then split 2-for-1. Twenty-two of the 25 analysts following the stock maintain either a "buy" or "strong buy" recommendation.

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