100 lose jobs as Acer cuts direct sales division

By Dave Dreeszen Journal business editor | Posted: Wednesday, July 09, 2008

NORTH SIOUX CITY -- Gateway's new owners pulled the plug Tuesday on the company's once wildly successful direct sales model, which catapulted a small firm born in a Sioux City farmhouse into one of the world's largest computer makers.

Taiwan-based Acer Inc., which acquired Gateway eight months ago, announced plans to shut down its North Sioux City division that sells desktops and laptops direct to consumers over the phone and online.

In addition to closing the Gateway Direct division, Acer also will cut some related support staff in North Sioux City, company spokeswoman Lisa Emard in an e-mail. About 100 local workers received pink slips Tuesday.

"It's very fair to say it will be a significant number of employees, but not a total shutdown of the North Sioux City operation," said Kory Menken, executive director of the city's Economic Development Corp.

The move, which takes effect Sept. 5, or sooner if supplies run out before that date, leaves 150 Gateway workers in North Sioux City, assigned to functions that include customer service, engineering and administration. That's a fraction of the nearly 6,000 workers housed in the sprawling cow-spotted complex during Gateway's heyday in the late 1990s.

Since inking its $710 million deal for Gateway last August, Acer earlier had eliminated about 100 other jobs, which included the closing of a once highly touted technical support center.

Critics noted that Acer chairman J.T. Wang appeared to rule out layoffs at Gateway's North American facilities in an interview with a national business magazine last fall.

To many industry observers and even some local leaders, the elimination of Gateway's direct sales division doesn't come as a major surprise. Acer, which built its global business through retail chains and other indirect sales channels, had virtually no direct sales when it purchased Gateway.

Acer continued offering the Gateway brand, along with its own brand of PCs and notebooks. After more than eight months of "careful consideration," Acer decided to focus exclusively on its "proven indirect sales model and transition Gateway's direct sales to the company's channel partners," Emard said in an e-mail.

Acer, the world's third-largest PC maker, will be the only top-tier company totally supporting its retail and channel partners "without a competing direct sales force," Emard said in the e-mail.

"In addition, this move will dramatically simplify our business model and bring significant cost savings to the company," Emard said. "These cost savings will ultimately result in an improved value proposition for our customers."

Gateway, founded by Ted Waitt and Mike Hammond on Waitt's family farm in 1985, grew into a multi-billion dollar enterprise largely on the strength of its direct-sales-only model. The folksy company, which played up its Midwest roots with low-tech ads that featured cows and company founder Waitt, developed a global reputation for its made-to-order business and strong customer support.

In what turned out to be a financially costly move, the company later opened its own Gateway branded stores. As its financial troubles began to mount, the company closed the stores earlier this decade, and began to offer its products in big-box retailers like Best Buy.

By the second quarter of 2007, Gateway's direct sales of PCs had dwindled to 30,000, compared to nearly {M31 million units at retail.

Acer's decision means consumers will no longer be able to buy a Gateway desktop or laptop direct. That soon also will be true for business customers.

In a separate deal last September, MPC Corp. acquired the professional portion of Gateway's business. That deal gave the Nampa, Idaho-based firm the rights to use the Gateway Pro name for a year's time. Newer models have started to transition to the MPC brand name, said company spokesman Michael Boss.

MPC now employs about 400 former Gateway Pro employees in the space it leases from Acer on the second floor of Gateway's former Argentina building in North Sioux City. MPC continues to hire staff in North Sioux City, Boss said.

With other call centers expanding and a low local unemployment rate, area leaders anticipate the displaced Gateway Direct workers will be in high demand.

In North Sioux City, two other call centers, Alorica and Edge Teleservices also are currently hiring within the telephone sales and technical support fields, Menken noted.

"First and foremost, our hearts go out to those directly impacted by the layoffs at Acer/Gateway," added Chris McGowan, executive vice president for The Siouxland Initiative. "Our goal, of course, is to retain as many of these employees as possible in Siouxland, as we have a consistent need for personnel within the quickly expanding contract center industry."