Gateway Cuts Back on Outsourcing

Following its move to
shutter 188 stores and lay off 2,500 employees, Gateway is
terminating an IT and human resources services contract with ACS .

Instead, Gateway will handle the tasks — which include IT help desk
support, benefits processing, payroll, and expense processing — internally,
said ACS, which made the announcement this morning.

The transition will take place over the next 90 days. The agreement was
signed in in September and valued at $400 million over seven years. It
accounted for $14 million in revenue during Dallas-based ACS’ most recent
quarter.

Gateway spokesman Ted Ladd said the break-up fee for the ACS contract is not
being broken out. In all, the company expects restructuring charges of $400
million to $450 million for the full year, with the bulk of costs coming
from severance payments and asset write-downs. Gateway has 3,500 employees
and will be down to 2,000 by year’s end.

Spokespeople for both companies were not immediately available to say what
penalty Gateway paid for breaking the deal. But in a statement, ACS CEO Jeff
Rich said the termination agreement will boost revenue and earnings for the
rest of the calendar year.

“This is a very amicable parting from both a business and financial
perspective,” Rich said. “Unfortunately, recent developments dramatically
reduced Gateway’s need for our services and the partnership we initiated
last fall no longer makes sense for either party.”

For Poway, Calif.-based Gateway, it’s the latest move in a year of change.
In addition to closing its retail stores, Gateway paid $235
million
in cash and stock for low-cost PC maker eMachines to try and
make up ground on Dell and HP .

eMachines came with a dozen strong retail relationships, including BestBuy,
Office Depot and Wal-Mart, as well as a lean operations model that produced
$1.1 billion in revenue last year and a string of nine consecutive
profitable quarters.

At the same time, Gateway CEO Ted Waitt stepped aside to let eMachines CEO
Wayne Inouye, a former senior VP for BestBuy, take the helm of the combined
company, with Waitt remaining as chairman.

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