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Published by Arik Hesseldahl
The McDonald's Of Computers: A profile of PC maker eMachines, emphasizing on its turnaround from a money-losing company to a profitable, privately held concern. By Arik Hesseldahl, from the Nov. 24, 2003 issue of Forbes.
The McDonald's Of Computers: A profile of PC maker eMachines, emphasizing on its turnaround from a money-losing company to a profitable, privately held concern. By Arik Hesseldahl, from the Nov. 24, 2003 issue of Forbes.

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Published by: Arik Hesseldahl on Jun 12, 2009
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05/11/2014

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TE
COMPANIES
J.
aver;
EXCLUSIVE
A
teenage heiressfinally talks.
A $15
billion
tale
of greed,betrayal and deceit.
ailN
ISO
HOW TO AVOIDSMALL-STOCK SCAMSRICHEST PEOPLE IN CHINA
$4.99/
CANADA
$6.99DISPLAY UNTIL DECEMBER S, 2003
 
A
few years agoErnachines looked
like it
was going tobe another casualtyof the PC business.Wayne Inouyemade it the
third-
bestselling brand
in the
U.S.
BY
ARIK
HESSELDAHL
The McDonald'sOf Computers
O
N HIS
FIRST
DAY ON THE JOB IN
JULY
2001
GARY ELSASSER
walked
into
his new
office
to
find the personal computer onhis desk patched
up
with
tape.
The plastic door to the computer's
CD
tray had fallen off at some point. The previous occupant had just haphazardly stuck it back in place.It's the sort of thing not given a second thought at most
firms.
But Elsasser's new job was vice president of platformdevelopment at Ernachines, and the patched-up
PC
bore his newemployer's brand. His experience was by no means uncommon.
CD
tray doors, it turned out, were the replacement part mostrequested by Ernachines' customers."I looked at that and said to
myself,
'This is a problem I canfix,'" Elsasser recalls.
It
wasn't the
only thing
that needed
 fixing
 at the
Irvine,
Calif,
firm. By the time Elsasser joined the company, it was beingdescribed in press accounts as "troubled" and "under pressure."Its share of the market for PCs selling through big retailers likeBest Buy, Circuit City and Wal-Mart had dropped below
10%
from
17%
the previous July. Hewlett-Packard and Compaq, still a monthaway from announcing their massivemerger, divided 80% of this marketbetween them.Worse, of those customers stillbuying Ernachines' PCs, 18% sentthem back, either because they founddefects or they just plain didn't like'em. This was one of the industry'sworst return rates.Each return cost Ernachines $200in devaluations plus shipping. Nosurprise, then, that it was bleedingcash. In the year ending December2000 it lost $220 million on sales of$684 million. In May
2001
the company was delisted from Nasdaq; byJuly
25,
when it reported yet anotherquarterly loss, shares of Ernachineswere fetching
17
cents on the bulletinboard. The company scrambled withCredit Suisse First Boston to find abuyer, but no one answered the callseriously.No one, that is, except cofounderLap Shun Hui, a Hong Kong nativewho also calls himself John. Amongother things Hui is the founder andowner of KDS-USA, a maker of computer monitors. On the last day of
2001
he closed a $161 million deal tobuy Ernachines at $1.06 per share andtook it private.He hasn't looked back since. ByAugust of this year Ernachines' share of
PCs
sold through retailstores in the U.S. topped 26%. Include Web and catalog sales,
too,
and Ernachines ranks number three in the domestic marketfor desktop
PCs,
behind only Dell and HP, and ahead of Gate
way,
according to research firm IDC.The
PC
industry
has
been in
a
 financial
 slump,
but Ernachines
has
just
 finished
ts eighth profitable quarter in a
row.
The firm'srevenues last year were under
$1
billion, so it is not included onour list of
America's
largest private companies
(p. 178),
but it ishighly likely to top the minimum in
2003.
"Other than
Dell,
weare the only company making money in the
PC
business," saysChief Executive Wayne Inouye. (Hui, who
 fives
n Los Angeles,wouldn't talk to FORBES.) Inouye took the helm in 2001 after acareer at electronics retail giant Best Buy, where he had beensenior
vice
president of marketing.Before taking
the job,
Inouye spent
weeks
looking at
the
firm'soperations. Even at
 first
 glance things looked ugly. Inventory
was
turning over fewer than four times a year in a business where a
170
FORBES" November 24, 2003

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