Nampa-based MPC Computers, under new ownership, battles slump in PC demand

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Author: Lora Volkert

Story Type: News

Whatever synergies there may be between MPC Computers and its new owner, HyperSpace Communications, they aren't likely to pay off anytime soon in soaring sales.

So the Nampa computer manufacturer has had to look to other strategies to boost sales and decrease costs during a time of flagging work orders.

When Denver-based HyperSpace Communications (AMEX:HCO) completed its acquisition of MPC in late July, officials of both companies said the merger would enable HyperSpace to sell its software - which speeds up computer networks - to MPC customers and MPC to sell its PCs and servers to HyperSpace clients.

But it's a little more complicated than that, said Ross Ely, vice president of public relations for MPC.

"The person responsible for procuring PCs is usually not the same one in charge of buying Web-acceleration software," he said. "It's a much more complex deal."

HyperSpace and MPC think the idea has potential since they market their products to the same niche - small to medium-sized businesses and government agencies - but that kind of cross-marketing is "a work in progress that we're still exploring," Ely said.

"I think our customers are intrigued with the idea," he said of using HyperSpace's software. "They're certainly evaluating it, but it hasn't had any big results for us yet."

Meanwhile, MPC is grappling with a sales slowdown. Government agencies have been slow to approve their budgets, Ely said, and MPC clients have booked fewer orders than usual for this time of year.

Consequently, MPC laid off 27 employees last month, reducing employment to about 770. Employment is ordinarily about 800 at this time of year, and peaks around 1,000 in the third quarter when the government buying season is in full swing.

MPC made the cuts across most salary levels and all departments, according to Ely. The company offered severance packages based on seniority and other factors to affected employees, whose last day was Nov. 21. The company has no plans for additional cuts, he said.

Ely said the slump is industry-wide and cited lower third-quarter earnings and recent layoffs at PC giant Dell Inc. However, Dell said recently that the decrease and layoffs were due to one-time charges to cover the cost of replacing faulty capacitors in some of its models.

At another major MPC competitor, Hewlett-Packard Co., revenue and profits were up for its computing group in the fourth quarter, though the increase in profits was due in large part to layoffs at that long-troubled company.

While overall orders have begun to slip, MPC reports increased sales of its notebook computers, servers and storage products, which have higher margins than "garden variety desktops," Ely said.

Sales of notebook computers increased 30 percent since last year, and server and storage product sales grew 47 percent, he said.

A continued focus on those areas could turn sales around, Ely said. MPC's sales staff is contacting long-term desktop computer customers and telling them "you really could do yourself a favor" by purchasing notebook computers and servers from MPC as well.

MPC's longtime customers tend to stick by the company not for its products, which are "not really that different at any vendor you go to," but for its service and support. Since laptops and servers are fairly standard from one manufacturer to another, customers could get the support they like for all their hardware, he suggested.

Service and support set MPC apart from the competition because the company assigns service engineers to sizeable clients so customers can work with the same person each time and the engineer can become familiar with the customer's system.

The company also keeps its telephone hold times under two minutes and ships replacement parts the same day they are ordered. Under one of its support package options, MPC will ship a replacement computer to its clients by the next business day.

In addition to pushing its service, the company is pushing its notebooks based on features designed to appeal to business and government clients.

Many of these clients have security requirements for which the biometric fingerprint scanners and smart-card ports on MPC's notebook computers are well-suited.

The notebook computers also come with serial and parallel ports that make them compatible with printers and scanners made in the late '90s.

Electronic products made today plug into a different style of port, so many computers built today don't even include parallel or serial ports, effectively rendering somewhat old but "perfectly good" printers and scanners useless, Ely said. "A lot of government agencies still use these printers," he noted.

MPC is still looking into offering a tablet PC, he said. But tablet PCs tend to appeal to certain niches, and the overall market for those products is fairly small.

The merger between MPC and HyperSpace has gone smoothly, according to Ely. And although cross-marketing the software and computers hasn't yet materialized in any sales gains, Adkins and HyperSpace Chairman John Yeros have said one of the biggest benefits from the merger is the combined company's increased access to investment capital.

MPC will benefit from becoming part of a publicly traded company, and HyperSpace, which had only 13 employees prior to the merger, will look more appealing to investors when it seeks financing because of its greater size.

In its third quarter ended Sept. 30, HyperSpace announced a $4.9 million loss, including the cost of acquiring MPC, on revenues of $100.9 million. The company's stock was trading around $6 last week, compared to a one-year range of $1.21 in February to $8.49 in August.

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