When MPC Corp. filed for protection from its creditors in bankruptcy court on Nov. 7, the company attributed its troubles to “unforeseen issues” related to last year’s acquisition of Gateway’s professional computing business and to the challenge of updating its manufacturing operations.
The Nampa-based PC manufacturer bet its future on that $90 million purchase, and problems with the transition accelerated “extensive losses” that forced the company into bankruptcy court. However, MPC had been struggling even before this year and had not generated positive annual cash flows since being acquired by HyperSpace Communications in 2005. MPC, originally known as Micron Electronics and then MicronPC, has had a rocky history since Boise semiconductor giant Micron Technology started the unit in 1991 and then spun it off as a separate company in 1996. Gores Technology Group, the Los Angeles-based tech-turnaround titan, acquired the company in May 2001 after two years of successive losses – and laid off 600 people. MPC, which specialized in selling computers to the government, education, and small to mid-size business sectors, then experienced four profitable years before the July 2005 acquisition by HyperSpace, a 4-year-old publicly traded company based in Colorado that sold software to speed up links between computers and servers. Prior to the acquisition, Hyperspace reported $500,000 in 2004 revenue compared with $428 million for MPC. The plan was for each company to cross-market its products to the other’s customers, but the merger resulted in no “material” sales. HyperSpace quickly suspended the development of its software products. In the second half of 2005, MPC began to grapple with a sales slowdown and laid off 27 employees in November of that year. The company was also experiencing liquidity problems. For example, it raised $12.6 million from warrant exercises that winter and $5 million from a bridge loan in April 2006, but those funds had been almost entirely spent by May 2006 to pay overdue vendor accounts. Also that month, the American Stock Exchange expressed concerns for a first time over the company’s financial condition and said HyperSpace faced the possibility of delisting because of questions over whether the company could continue operations or meet its obligations. In July 2006, the company laid off another 50 people, and Mike Adkins, who had been president and CEO of MPC and its predecessor since 2001, was replaced by HyperSpace’s chief executive officer, John Yeros. The company continued to lose money, including a $40.5 million net loss in the third quarter of 2006, and HyperSpace changed its name to MPC Corp. in December that year. The company lost a total of $58 million in 2006 and drained $22.3 million in cash just to fund operating activities. During all that time, MPC continued to warn about its extreme liquidity constraints, declining revenue, unprofitable operations and negative operating cash flows in documents filed with the Securities and Exchange Commission. Then, in September 2007, MPC announced that it would purchase Gateway’s professional computing business, which historically brought in three times the gross revenue that MPC did. In 2006, for example, the Gateway division reported revenue of $895 million compared to MPC’s revenue of $285 million. MPC said it believed the increased scale would enable it to better compete with larger competitors, including Dell, Hewlett-Packard and Lenovo. “This acquisition helps transform MPC into one of the top PC companies serving the professional market, including small-and-medium businesses, education and government,” Yeros said in a statement at the time. “MPC now has a more diverse and balanced product mix, as well as the scale to compete more effectively against larger rivals in the PC industry.” But the computer-maker’s problems only continued, according to documents filed with the SEC. Sales continued to decline, and unit prices also fell, causing a further drop in revenue. In February, Gateway’s IT and manufacturing systems were transferred to MPC, including the final assembly facility in Nashville, Tenn. Problems like inaccurate bills of materials; mistakes with inventory procurement and routing; and order entry errors by new sales staff caused some orders to be delayed in getting to the manufacturing floor. Other customer service issues and delivery delays caused some replacement parts to reach customers late, which lowered expected shipment volumes and revenues. The delays even limited and stopped production in Nashville at one point, over a three-week period. Inventory of raw materials piled up, jumping from $46.6 million to $72.8 million. Peripheral products like monitors, speakers and keyboards could not be properly procured from third-party vendors and shipped to customers, which meant invoices could not be sent. Additionally, a number of suppliers, including Intel, began reducing MPC’s credit line or restricting shipments of component inventory, causing additional delays in manufacturing and shipments of finished goods. In April, MPC said it would transition manufacturing operations out of Nashville to Juarez, Mexico in an agreement with Flextronics Computing Mauritius Ltd. for which Flextronics would perform procurement, supply chain management, manufacturing, assembly and testing at its facility. That would mean the loss of 145 jobs, though MPC said it expected to reduce manufacturing and overhead costs through Flextronics’ larger scale of operations. The American Stock Exchange notified MPC again in May it was out of compliance with listing standards because it had stockholders’ equity of less than $2 million and sustained losses from continuing operations and net losses in two of its three most recent fiscal years. A ramp up in manufacturing by Flextronics proceeded slower than MPC expected, even while a substantial portion of the inventory in Nashville was sent to Juarez. MPC also faced a delay in reaching an agreement over the amount of inventory Flextronics would purchase from the company. That further harmed MPC’s cash flow and liquidity in July and August, and MPC said it was becoming harder to cover fixed costs and warranty obligations. Sales declined further, and some customers began to cancel orders in backlog. Two companies filed lawsuits in federal court claiming that MPC had failed to pay them. On Oct. 16, the company announced that it was cutting about 200 jobs in Nampa and North Sioux City, S.D. On Oct. 27, the American Stock Exchange notified MPC that it would be delisted because the company remained out of compliance with listing standards related to “the company’s overall financial condition and its ability to continue operations.” The following day, Flextronics Computing notified MPC it would not supply product or services to the company because of its inability to “provide assurance to further meet obligations.” Shares of MPC stock fell from a three-year high of $8.10 in mid-2005 to 4 cents on Oct. 21, when its trading was suspended. On Nov. 5, the company announced another 210 job cuts at its Nampa facility. MPC filed for Chapter 11 bankruptcy protection on Nov. 7, which should allow it to reorganize its finances and continue as a company.
6 Comments
I purchased a Gateway laptop for school (I am 45 was a long time before could go to school)from the school at a cost to me of $3000.00. Due to issues with the lap top from the day I received it I finally had to send it in for warranty work with MPC (my system was included in the sell to MPC. It was returned with not all of the repairs completed and substandard or incorrect parts. Was told to send it back in for re-repairs which I did. I shipped it to MPC on October 28 2008 at which time the bankruptcy filling of MPC was already underway so I don't understand why they ever told me to ship my system back to them when they knew that the work was not going to be done. I have called MPC customer service and was informed the warranty work was not and will not be done on my system. Could not or would not tell me when my system will be returned or even where my laptop was at present time. When I asked for information on who I could contact that would be able to give me the information I was seeking the MPC representative refused to tell me. When I asked to speak to her supervisor she just blatantly hung up on me. I called MPC customer service last week Nov. 11 2008 and was told to send an email to a specific devision of MPC which I did that same day and have had no response to my email as of todays date Nov. 22 2008. All of this has now left me with out the laptop purchased for school and is required in order to complete daily assignments, I was going for my Associates in web design. I have now had to take a leave of absence from school. Now being a full time student attending classes makes my student loans due. If i apply for a deferment or forbearance from my payments it compounds all the interest for each deferment or forbearance granted. If or when I am able to get enrolled in classes again this will effect my finances as I will have to apply for additional student loans. I have no clue what or if I have any options to getting my property returned to me. All I have read about is the impact and the reasons why MPC filed for chapter 11. I have not read or heard about any one caring about the impact of this on us the every day working people. Those of us who have to make daily sacrifices in order to achieve our goals. We, the working people, are being hurt by this strategic business decision made by MPC for their own benefit with no consideration or concern for the little people.
Regina Myers
Phoenix Az.
Comment By Regina Myers Saturday, November 22, 2008 @ 5:05 PM
Re: Comment # 1
It is indeed unfortunate that you were caught in the middle of a very complex series of events leading up to MPC’s bankruptcy filing. You did not mention what type of education you are pursuing, but I was absolutely shocked to see that you paid $3,000.00 for a laptop. My daughter is in college pursuing a degree in virtual technology and design. The course calls for a laptop with very high-end graphics capability, at least 2 gigs of memory and a high-end processor. I purchased a HP laptop last year for $1,100 (a comparable MPC laptop cost over $2,000 at that time). Prices have fallen from those prices last year. Unless you need a laptop that could handle a space shuttle launch, it appears you may have paid an exorbitant price for your laptop, even if you purchased an extended warranty. There are laptops available new in the $600 - $700 range with very full features, and the very high-end laptops can be had for $1,000. Laptops with extreme performance requirements can be in the $3,000+ range. Hopefully, you won’t let this situation slow you down on getting your education. Continue to push forward toward your goals; get a new or used laptop and get on with it.
Comment By Mike Young Monday, November 24, 2008 @ 2:38 PM
MPC was always a huge problem waiting to happen...
I bought a Gateway computer for school, as well, and had to deal with MPC when I had a problem with my charging port. They ended up replacing the entire motherboard, and fan, just so it would charge the battery or even power up. The first time they sent the wrong hardware to fix it.
I was just happy to get it fixed back then, after 2 weeks.
Now I'm having issues with my audio driver, and called MPC for technical support, since I have a 4 year warranty with them. Today was the first time of hearing about the bankruptcy problems of MPC. You can't contact them by phone, and I'm sure it will be weeks until they get to their email support.
With less employees and no replacement parts from their failing manufacturing plants, it is scary if I have a major problem with my system. I will probably end up going to a local computer expert for problems now that it looks like the warranty on my computer is virtually worthless!
Comment By Jeremy Thelen Wednesday, November 26, 2008 @ 4:16 PM
I purchase the first generation tablet gateway laptop, which cost my 2,500 NOT including the extended 3 yrs warranty. I am pursuing a degree in engineering and am required a tablet pc at VT. My hard drive crashed, due to a corrupted, hard drive, I called MPC to find that they have now been bankrupt for about a month. So I preceded to call gateway to see what they could do for me with having 1 YEAR left on my warrant. After spending an hour just trying to get someone to talk to me through there automated system, it then took me 30-45min to find out that not only in gateway NOT fulfilling my warranty (which I purchase directly through gateway!!) but that they can't even fix my computer even if I was willing to pay to have them do it! So I LOVE that I have a 2,500 dollar piece of technological crap!
Comment By Ashley Sunday, November 30, 2008 @ 11:08 PM
My company has done business with MPC & Dell for many years. At one time MPC could compete with Dell for PCs in the small business world. But when Dell started pushing its server products, they dropped the prices on their PCs to get the Dell name in the door. MPC couldn’t compete with Dell’s PC prices, so they had to sell themselves on service & support (which was way better than Dell). Eventually MPC’s PC market was in freefall, and they decided to create a new identity as a storage company. Then they decided to stop making their own servers and resell HP. Then they decided that was a bad idea (which it was) and went back to their own servers. They created their own iSCSI SAN which was a great product and beat anything Dell had in the small business SAN category. But there just wasn’t enough volume, and Dell eventually began to kill them on server prices. So MPC tried to solve this problem by acquiring Gateway, hoping that the added volume would allow them to match Dell’s prices. But in the end their identity crises scared away their current customers (at least me). And many of the Gateway customers saw this as a signal to abandon the product. Of course they also lost a lot of good people during the chaos, which also made their excellent customer service plummet to almost non-existant customer service. The sad thing is that they could have continued to be a good, profitable small company. But their desire to play in the big leagues created one bad decision after another.
Comment By Mike Thursday, December 4, 2008 @ 1:05 PM
I have a three year warranty for my Gateway; the warranty was sold to MPC last year; it still has two years left. From a practical perspective, I know MPC will not be honoring. Who/how do you get a Gateway fixed if it breaks? Is it possible or should I just plan on having to buy a new one?
Comment By Mary Thursday, December 4, 2008 @ 5:19 PM
CONTACT US at 208.336.3768
SUBSCRIBE
