MPC’s collapse leaves schools in the lurch

Computer supplier MPC Corp., which acquired Gateway’s education business in 2007, is going out of business–leaving countless schools and students with machines in need of repair and/or thousands of dollars in lost warranties.

MPC representatives did not respond to repeated requests for an interview. But educators who spoke with eSchool News said they’ve experienced poor service and support from MPC since the company’s purchase of Gateway’s assets–and they pointed to this failed acquisition as a key reason for MPC’s collapse.

In October 2007, even though MPC posted a net loss of $25.3 million on net revenue of $53.6 million for the second quarter of fiscal 2007, the company bought Gateway’s professional division–which included its business, education, and government customers–for $90 million; Gateway’s consumer brand was bought by Acer.

At the time, MPC said it would take responsibility for operations and warranty support service.

"We believe that the customers of MPC and Gateway’s professional business will benefit greatly from this combination," said John P. Yeros, chariman and CEO of MPC, in a statement released after the merger. (See "MPC acquires Gateway’s school business.")

The acquisition was supposed to help MPC’s lagging sales and make the company a major player in the PC market. However, the deal appeared doomed from the start.

According to the Sioux City Journal, last January, more than 400 former Gateway workers retained by MPC in North Sioux City, S.D., moved to their new offices. For the first month, "sales representatives could not enter orders or offer quotes due to problems related to switching to MPC’s system. That contributed to lost sales, and a worsening of MPC’s already tight cash flow."

Problems continued, with manufacturing delays, parts shortages, inaccurate orders, and billing and routing problems.

To save on overhead costs, MPC signed a deal with Singapore-based Flextronics to outsource its manufacturing. However, Flextronics cancelled the deal after rumors of miscommunication and service delays.

In May, the American Stock Exchange (AMEX) notified MPC that it was not in compliance with AMEX regulations, because the company’s shareholder equity had fallen below $2 million and because MPC had sustained net losses in two of its three most recent fiscal years.

MPC responded by filing a plan to achieve compliance, which AMEX accepted in June–giving the company until November 9, 2009, to bring itself back to viability under AMEX rules. However, in October, the exchange (which had changed its name to NYSE Alternext) notified MPC that it was not making sufficient progress with its plan and would be delisted.

Through the first nine months of the year, MPC’s losses totaled nearly $100 million, and its shares tumbled from $8 a share to only 4 cents per share before its delisting.

In early November, MPC filed a petition for Chapter 11 bankruptcy protection. In a press release announcing the filing, Yeros said issues surrounding the integration of the former Gateway unit, along with problems with MPC’s "manufacturing partner," contributed to extensive losses.

Shane Steckelberg, technology director for the Dakota Valley School District in South Dakota, said MPC’s flounderings have forced his district to spend its own time and money servicing Gateway computers–many of which were supposed to be under warranty.

Dakota Valley has about 370 warrantied Gateway computers and 144 computers that are out of warranty in its classrooms.

According to Steckelberg, Gateway opened its first headquarters a few miles down the road from Dakota Valley, with thousands employed by Gateway from the community. The district, which was created in 1995, has used Gateway computers since that time. However, at a July board meeting, approval was given to move to another vendor as a result of the poor service the district was receiving from MPC.

"We dealt with two local representatives. Their responses and service had always been exceptional, but following the MPC transition, it seemed difficult for them to provide answers and complete the tasks required to successfully service our district," Steckelberg explained.

After receiving a letter with notification of MPC’s bankruptcy, Dakota Valley filed a claim against the company to recover the remaining value of the extended warranties on its machines. The district also is withholding payment on its final purchase of 85 tablet computers from MPC back in May–an amount that is slightly less than the value of the remaining warranties on its machines.

"We’ve been very lucky in that we’ve had a sufficient stockpile" of computers to ensure that MPC’s struggles have not affected classroom instruction, Steckelberg said. "Some of the spares have been older machines used in a temporary capacity as we were on hold, wondering whether warranty repairs and replacement might still occur. We are now fixing our machines through another vendor at our own cost as long as parts are available."

He continued: "While end users have seen very little issues directly, the toll on the technical side has been extremely time-consuming."

Another school system, South Dakota’s Baltic School Distric, wants to return about 50 Gateway laptops it received under a state program.

Baltic Superintendent Bob Sittig said his district has used Gateway computers issued under the Classroom Connections program for part of 2008, but it never received its complete order of 175 laptops for high school students.

Within the last few weeks, MPC has told the Idaho Department of Labor it will shut down permanently. MPC noted that a substantial portion of its sales force resigned without notice between Dec. 4 and Dec. 12, which has made it impossible to continue with business operations. The company also said efforts to reorganize under Chapter 11 were unsuccessful and announced it would lay off 147 employees immediately, keeping the remaining 51 employees only to wind down operations.

MPC had tried to continue operations while reorganizing but was not able to get the financing it needed to continue operations.

In posts to internet sites such as, students who’ve purchased Gateway computers for schoolwork revealed they’ve been left stranded as well.

Regina Myers from Phoenix, Ariz., said she bought a high-end Gateway laptop after the company had merged with MPC. She sent her laptop to be repaired in October, under the manufacturer-issued warranty, but never got it back.

"I don’t understand why they 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; [they] could not tell me when my system will be returned or even where my laptop was at the present time," said Myers.

After further calls and eMail queries, Myers still had not heard anything back from MPC as of press time. "All of this has left me without the laptop [I] purchased for school, which is required in order to complete my daily assignments. I now have to take a leave of absence from school. We, the working people, are being hurt by this strategic business decision made by MPC for [its] own benefit, with no consideration or concern for [others]," she wrote in her internet post.

A Vermont student said she’s required to have a tablet PC for her degree in engineering. After the hard drive of her Gateway tablet crashed, she called MPC only to find out from an automated system that the company went bankrupt.

"I found out that Gateway would not fulfill the rest of my one-year warranty, and they can’t fix my computer even if I was willing to pay to have them do it!" she wrote.

With the angry posts continuing through several pages, it appears MPC’s liquidation has affected more than just the computer market, as students, schools, districts, employees, and entire communities have been left stranded in the wake of a risky merger gone horribly wrong.

Said one internet poster, "The sad thing is that [MPC] could have continued to be a good, small company, but their desire to play in the big leagues created one bad decision after another."



Note to readers:

Don’t forget to visit the Eco-Friendly Computing resource center. With energy costs soaring to record levels, taking steps to reduce the amount of energy you use isn’t just good for the environment–it’s also essential for your schools’ fiscal health. Fortunately, manufacturers of technology are responding to these needs by developing more eco-friendly products that can reduce power consumption and save schools money over the life of these systems. Go to: Eco-Friendly Computing

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