Gateway cuts manufacturing jobs amid cost pressures

Gateway will outsource a number of PC assembly and manufacturing jobs as part of its continued effort to slash costs, the company said Wednesday.

The Poway, Calif., company will close its manufacturing plant in Hampton, Va., and cut jobs at its two South Dakota plants in North Sioux City and Sioux Falls, it said in a press release. Those manufacturing jobs will be handled by outside companies and other Gateway locations, Gateway said.

Around 450 employees in Hampton will lose their jobs, said Brad Williams, a Gateway spokesman.

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Gateway will outsource a number of PC assembly and manufacturing jobs as part of its continued effort to slash costs, the company said Wednesday.

The Poway, Calif., company will close its manufacturing plant in Hampton, Va., and cut jobs at its two South Dakota plants in North Sioux City and Sioux Falls, it said in a press release. Those manufacturing jobs will be handled by outside companies and other Gateway locations, Gateway said.

Around 450 employees in Hampton will lose their jobs, said Brad Williams, a Gateway spokesman.

Gateway has not made the final determination as to the number of employees that will lose their jobs at the South Dakota plants, said another Gateway spokesman.

The Wall Street Journal, citing people familiar with the siutation, reported Wednesday that a total of around 1,100 Gateway employees would be affected by the cuts.

The plant in Sioux Falls employs about 950 workers in technical support, spare parts and call centers, while the 2,500 employees at the North Sioux City plant handle manufacturing and administrative duties, among other things, the spokesman said.

The Wall Street Journal also reported that Gateway is in discussions with Celestica, Solectron, and Wistron as potential outsourcing partners. Williams declined to confirm that report, but said Gateway is in the process of assembling its partners to improve its operational efficiencies.

Gateway's latest job cuts are part of a new product fulfillment model, the company said. This model is expected to save $115 million to $130 million yearly through improved planning capabilities and greater pricing flexibility, Gateway said.

These savings come in addition to $400 million in previously announced reductions, but will be offset by charges of between $120 million and $160 million to be taken in the fourth quarter and first quarter of 2004, Williams said.

Gateway will look to identify other areas where it can outsource work to improve its performance and become more efficient, it said in the release.

The job cuts come as Gateway struggles to return to profitability following the downturn in PC sales over the last few years. The company has embarked upon an ambitious strategy to transform itself into both a consumer electronics vendor and a server and storage vendor, while maintaining its PC lineup.

The idea is to shift Gateway's focus from the low-margin, low-growth PC business to other markets with better growth prospects, such as digital cameras and plasma televisions. But Wednesday's announcement shows that Gateway is still aggressively reducing its PC costs as it mines new sources of revenue.

Recent forecasts from IDC and Gartner show an improving market for PCs over the remainder of the year, but prices of components such as memory are starting to rise after several years of decline. As a result, other PC companies are also looking to cut costs

HP recently reported disappointing earnings for its personal systems group, which lost $56 million in its third fiscal quarter. The company blamed overly aggressive pricing strategies that backfired when component prices changed.

HP also said it is outsourcing more jobs to locations such as China, Costa Rica and the Philippines to reduce costs.

The IDG News Service is a Network World affiliate.