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Immediately, Waitt knew Gateway was in serious trouble. Insiders say it was at this point that he began to show up at Gateway's offices more often and grill Weitzen about his handling of the crisis. Weitzen bristled at his presence. He was particularly upset to learn that Waitt was meeting with his managers alone and calling board members behind his back. The two never argued openly, but tension between them was building.

It all came to a head at Gateway's Jan. 17 board meeting. In a hostile and combative proceeding, insiders say, Waitt and the board interrogated Weitzen relentlessly. At one point, after Weitzen had finished talking about his plans to improve customer service, one board member snapped, "Why should we believe you?"

After the meeting Weitzen was furious. Stewing all weekend, he confronted Waitt the following Monday. High-level insiders say they argued for hours behind locked doors over how and by whom Gateway should be run. Waitt told Weitzen that he wanted him to stay on as CEO while Waitt took a more active role as chairman. For Weitzen, this arrangement--effectively a demotion--was unacceptable. Weitzen delivered an ultimatum: Back off or he was quitting.

Taking a day to think about it, Waitt decided he wasn't backing off. In a brief meeting on the morning of Wednesday, Jan. 24, he told Weitzen his decision. Shortly after, he called his old friend Bart Brown and said, "I'm putting the band back together."

By the following Monday, when Waitt announced his return, Weitzen was gone. (Weitzen, who collected a $5.6 million severance package, has no plans to look for another job.) That day Waitt also called in six of Weitzen's eight top managers, one by one, and told them to clear out. At the same time he rehired Brown, Russell, and Bob Burnett, another vet who'd quit, and reinstalled Hammond as operations chief. What's more, he persuaded them all to move to San Diego.

Since then Waitt has moved fast to try to get Gateway back on track. Within days of his return, he revoked 21 initiatives and 14 "stupid policies" Weitzen had in place. The deal with QVC is out. So are the time limits on customer-service calls. Beyond the Box has been replaced by Back to Basics. Explains Waitt: "We're in retrenchment mode." His plan is to ride out the economic storm by slashing costs and increasing sales volume. Backing off from noncore businesses, Waitt has sold $500 million of Gateway's $800 million consumer loan portfolio. And while the company will continue to offer beyond-the-box services, its focus is selling "one computer, one customer, at a time," says Waitt.

To that end he's revamped compensation, paying sales reps higher commissions for PCs once again. He's slashed Gateway's prices, matching Dell's in some cases. To trim costs, he's shut down 27 stores and is paring international operations. He's also cutting the number of components used to build Gateway PCs, reducing product variations from 23 million to 1,000. He's fired the company's ad agency and moved advertising in-house. He's even put the corporate jet up for sale (a Falcon 2000, $22.5 million, if anyone's interested). To motivate the troops, Waitt--in an internal contest dubbed Win Ted's Paycheck--is giving away his $10,000 biweekly salary to departments that best improve customer satisfaction or reduce costs. In Project Big Bucks, employees who suggest successful cost- cutting measures will win a percentage of the money saved at the end of the year.

Will all that be enough to rescue Gateway? "The jury's still out," says Marc Klee, lead portfolio manager of the John Hancock Technology Fund, which sold its stake in Gateway just before Waitt's return. After all, Waitt has been back on the job just three months. Still, his back-to-basics strategy "is absolutely on target," says Charlie Wolf, a PC analyst at Needham & Co., adding, "his employees love him, and when employees love their CEO, they work harder." Indeed, since Waitt's return, close rates have jumped 20%, and customer satisfaction is up nine percentage points, to 76%, one point above the industry average.

But even for Waitt, saving Gateway will not be easy. "He's not God," observes Merrill's Fortuna. The problem here is bigger than low morale or strategic missteps. It's that consumers are simply not buying PCs like they used to. Even if the economy heals, the industry's glory days of fast growth with high margins are gone: More than half of U.S. households now own a computer, and thanks to plunging prices, average net margins on PCs have shrunk from a historic 25% to less than 5%.

Waitt knows that his presence is no cure-all. "I don't want people to think just because I'm back, I'm going to automatically solve all the problems and everything's going to be okay," he says.

Indeed, a recent visit to a sales floor in Salt Lake City showed how tough it is to close a sale these days, even for Waitt. Strapping on a headset, Waitt takes a customer call. "Welcome to Gateway. This is Ted, how can I help you?" he begins. He chats up the customer effortlessly, learning that her name is B--, she's a mother of four, and she needs a PC for her kids' homework. Looking on, one of the reps on the sales floor tells me, "He's really good--see how he gets all the details?" After 20 minutes Waitt has almost got a deal. At the last minute, though, B-- backs out. Worried about expenses, she says she has decided to put off buying a new PC.

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