Gateway will acquire eMachines for about $200m (£110m) to bolster its shrinking PC revenue while it pursues the consumer electronics market.
The deal will provide Gateway with the revenue generated by eMachines' strength among consumers in retail channels. eMachines sells low-cost PCs in the US and is now in fourth place, according to market research from IDC.
The deal comprises of 50 million shares of Gateway stock and $30m in cash.
"This combination will create a company that has multiple brands, sells through multiple geographies and has a broad product line selling through multiple channels at the same time," Waitt said.
Gateway has shifted its business during the past year from PCs to consumer electronics, especially digital televisions. Many PC companies think the higher growth rates of the consumer electronics business will allow them to grow as the PC market matures.
But while Gateway has successfully introduced a number of plasma and LCD televisions, its revenue from PCs remains its single largest segment, and that segment has dropped steadily over the past year.
During the fourth quarter overall, revenue fell 17% and PC shipments declined 27%, while revenue from products other than PCs grew 39% compared with last year's fourth quarter.
PCs with the eMachines brand will be sold only through third-party retail channels in the US and in other countries. Gateway has not sold products outside the US for some time.
Gateway also hoped to build on eMachines' channel strength by introducing more of its digital televisions and consumer electronics products into third-party retail stores.
Gateway already operates about 190 retail stores around the US, and also sells products through its website.
After the acquisition is completed, Gateway expects to post a profit in 2005.
Tom Krazit writes for IDG News Service