by Katrina Brooker

Early on a mid-March morning--on what happens to be the first sunny day in North Sioux City, S.D., since October--Ted Waitt comes home. Walking quickly across a small courtyard where piles of hardened snow are just beginning to melt, he opens the door to Gateway's manufacturing plant here. Inside at Earl's Place, the lunchroom, hundreds of people have packed in to welcome him back. And while the folks here--assembly-line workers, freight operators, shipping managers, call-center reps, quality inspectors--have eight-hour shifts ahead of them, their mood is celebratory. Rock music blares from the speaker system. Friends jostle and call out to one another from across the room. Posters splayed all over the plant's walls pronounce, ted is coming! On one that reads welcome back, ted in two-foot letters, workers have scribbled small notes to Waitt, yearbook style. "We're so glad to have you back. Rock on!" declares one message. "A great day for Gateway," another says. Still another reads: "The captain has come back to mind the ship and crew. Can't have the ship afloat without the captain."

As Waitt enters the room, a plant supervisor shouts over the crowd, "Ted is in the house!" The music shifts to Smash Mouth's "All Star." As the chorus throbs, "Hey, now, you're a rock star ..." Waitt steps up onto a small, makeshift stage at the center of the cafeteria. The room is suddenly quiet--listening, waiting. Then, softly, almost shyly, in a low, throaty voice, Waitt says, "It's good to be home."

Here in this prairie town, where he was born and raised, met his wife, had his four kids, and built Gateway from nothing, Waitt is more than just the CEO. As one plant worker, shouting above the crowd, tells it: "He's our hero." Right now, a hero is what this company needs.

In January, one year after retiring as CEO of Gateway, Waitt stunned Wall Street, the press, and even his own employees by abruptly ousting his handpicked successor, Jeff Weitzen, firing almost all of Weitzen's top management team--including the CFO, CTO, and operations chief--and renaming himself CEO. Though the move was shocking, it's no secret that Gateway needed a fix. This company is in serious trouble. With the economy deteriorating and personal computer sales plunging, Gateway's net profits fell 26% last year, to $316 million. The company lost $94 million in the fourth quarter; in the first quarter of this year, estimates Steven Fortuna, Merrill Lynch's PC analyst, it lost another $13 million. (Results will be announced April 19.)

Waitt says he hopes Gateway will be profitable again by December. But that may be optimistic, considering that the company's archrival, Dell Computer, has launched a price war, dropping its PC prices by as much as 20%. On April 5, Dell's stock jumped 13% on news that its strategy is helping the Austin, Texas, company take market share from Gateway and other makers of personal computers. Meanwhile, Gateway's stock has plunged 80% from its 52-week high, trading recently at $15. (Waitt, with a 32% stake in the company, has lost more than $5 billion.)

But Gateway's problems began long before this winter. In his first extended interview since reclaiming the CEO's seat, Waitt talked candidly with FORTUNE about what went wrong over the past year, why he decided to take back Gateway, and how he plans to save it. Interviews with him and with dozens of current and former employees reveal how cultural clashes, strategic missteps, and a fundamental rift between Waitt's old Gateway and Weitzen's new one undermined nearly every aspect of the business--its morale, its operations, its competitive edge, and ultimately its ability to thrive.

Wearing his trademark black cowboy boots, with wisps of his hair tied in a tiny ponytail, Waitt takes a long, heavy drag from a freshly lit Camel Light. He looks remarkably relaxed for a guy with so many troubles. Having crammed his 6- foot-1 frame into my messy office at FORTUNE's Manhattan headquarters, Waitt, 38, is describing his first day back at Gateway. One of the first questions he got was "Does this mean we get to drink beer in the office again?" Laughing, he recalls, "I said, 'No! No beer in the office before five.' "

Only when talk turns to his year away from Gateway does the laid-back, fun-loving Waitt grow momentarily somber. Worth more than $7 billion when he left, Waitt spent the year trying to keep busy: He set up a charity to donate PCs to the needy, sat on the board of MP3.com, even toyed with the idea of starting an entertainment company. But nothing felt right. "I was a bit lost," he says, "like Dorothy in The Wizard of Oz."

Like Kansas for Dorothy, Gateway has always been home for Waitt. At 22, Waitt started Gateway 2000 (as it was then called) in a barn on his parents' cattle farm outside Sioux City. While hardly a computer whiz--the University of Iowa dropout had flunked high-school computer science--Waitt proved to be a gifted and intuitive salesman. His strategy was simple: By manufacturing and selling PCs direct to consumers, he'd keep overhead low and offer high-quality PCs at low prices. On that formula, Gateway grew over the next 15 years into the nation's fourth-largest computer maker, pulling in close to $10 billion a year. The company now has 20,000 employees, 15 call centers, and five manufacturing plants worldwide, from North Sioux to Ireland to Japan, plus 300 Gateway Country retail stores around the U.S.

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