MPC decline leads to bankruptcy 

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.

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