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SCMP Reporter

Outsourcing services company Vsource faces an uncertain future after computer maker Gateway moved to review a deal that allows it to resell Gateway products in Hong Kong and Singapore.

Gateway was reconsidering its partnerships in the region after this week closing all company-owned, Asia-Pacific operations to focus on its core US market, a Gateway spokesman said.

Vsource has been running Gateway's stores at Times Square in Causeway Bay and Manning House in Central since July, days after Gateway decided to close its Hong Kong office and its stores in Kowloon Tong and Sha Tin.

Vsource has offered employment to former Gateway sales and marketing staff.

Under the agreement, Vsource is to operate the remaining Gateway retail stores and provide customer-relationship management for the computer maker.

The company also retained responsibility for warranty and technical support for Gateway customers in Hong Kong and Singapore.

Vsource officials said yesterday that they were seeking clarification of Gateway's plans and its partnership with the company.

They said Vsource had an existing contract that was valid and that it was business as usual for Vsource and Gateway until they heard otherwise. Financial details of the outsourcing contract were not released.

Vsource chief executive Phil Kelly said the company had been in discussions with Gateway about expanding their relationship in the region.

'We believe that using our complete suite of business process outsourcing and technology services will significantly enhance the sales and marketing of Gateway's products in the region,' he said.

He also was optimistic that the Gateway deal would put Vsource in a position to offer the same services to other large multinational companies.

However, the economic downturn and the continued sluggish sales of personal computers in Asia-Pacific threaten to sour the Vsource-Gateway partnership.

'PC sales remain depressed in the region and this puts a question mark on how Gateway's remaining retail operations in Hong Kong can grow,' said Kitty Fok, associate director for Asia-Pacific personal-systems research at International Data Corp.

Gateway, the fourth-largest PC vendor in the US, has continued to lose market share to main rival Dell Computer and to other top PC makers. First-quarter PC sales of Gateway this year totalled 1.1 million units worldwide, down 12 per cent from the same period last year.

Like Dell, Gateway has specialised in build-to-order PCs which are delivered directly from the factory to the customer.

Vsource expected the Gateway business outsourcing deal to boost its struggling operations and help it retain its Nasdaq listing.

The company had revamped its earlier business strategy on electronic procurement software to focus on business process outsourcing. It even managed to obtain a US$4 million standby letter of credit to support its Gateway deal.

Those developments, however, did not help when the Nasdaq management ruled to delist Vsource for failing to comply with the requirement that its price per share be higher than US$1 for the continued listing on the market.

The company's stock was supposed to have been delisted on August 1, but the company sought a hearing to appeal against that decision before a Nasdaq listing qualifications panel. Vsource officials said the company's position would be heard by the panel on September 14.

Vsource was advised by Nasdaq that, pending the panel's decision, there would be a stay on the delisting.

Nasdaq has even notified Vsource that certain aspects of its NetCel360 acquisition in Hong Kong and the related financings were in violation of Nasdaq's rules and could require the company to submit a new listing application and meet all initial Nasdaq listing criteria.

The company intends to present a plan for addressing the minimum bid-price requirement. This plan, subject to approval of Vsource shareholders, is expected to include a reverse split of the company's shares.

Vsource shares began trading on Nasdaq on October 30 last year, but had been trading below US$1 per share.



US computer-maker's move to review Asia-Pacific partnerships seen as threat to Nasdaq listing