Vanstar Corp.: Computer firm restructuring, cuts 700 jobs

By Andy Peters  – Staff Writer
Sep 21, 1998, 12:00am EDT Updated Sep 20, 1998, 9:00pm

Vanstar Corp. has fired 700 workers as part of a cost-cutting strategy. None of the employees were based in Atlanta.

Vanstar is a $2.4 billion Atlanta-based company that designs, builds and manages corporate computer networks. Vanstar (NYSE: VST) employs 7,100 people, with additional offices in Pleasanton, Calif., Luxembourg and Hong Kong.

Almost 60 percent of the downsized workers were temporary employees, many of whom were managers, said Chairman and CEO William Tauscher. Employees who worked directly with customers, such as help desk personnel and systems analysts, were not affected.

In recent months, Vanstar has been hit hard by the drop in price of personal computer products. Tauscher estimated Vanstar lost about $800 million last year.

The price drop was caused by Vanstar's suppliers, Compaq Computer Corp., Microsoft Corp. and Hewlett-Packard Co., bringing their product prices more in line with Dell Computer Corp., which initiated a price reduction last year. A reduction of product inventory also led to the price drop.

Vanstar posted disappointing sales results in its last quarter. Net loss for the quarter ended July 31 was $10.4 million, compared with net income for the year-earlier period of $6.6 million. Revenue in the first quarter was $655.2 million, down 3.7 percent from $680.6 million a year earlier. The company posted sales of $2.8 billion in fiscal 1998.

To deal with the loss of revenue, Vanstar undertook a restructuring program, splitting the company into two divisions. The Professional Services unit will handle technology consulting. The Life Cycle Management Services will be responsible for operational support. The split was a factor that led to the reduction in Vanstar's work force.

In August, Vanstar began firing employees and consolidating some facilities. Also, Vanstar will liquidate excess spare parts and write off redundant equipment. The moves are expected to result in a pretax charge of about $50 million in the second quarter ending Oct. 31, and about $75 million in annual savings.

Although there is no guarantee the price of personal computers won't continue to fall, Tauscher expects the price to level off. The Asian economic crisis, however, could continue to have a negative effect on Vanstar's operations, as Asian manufacturers could lower their prices to deal with their countries' weak economies.

Vanstar was formerly known as ComputerLand. Tauscher became chairman of Vanstar in 1987 after he sold a wholesale drug distributor in 1986 for $350 million. The company maintains two corporate headquarters, in Atlanta and Pleasanton, Calif. In addition to its headquarters here at 1100 Abernathy Road, it has local facilities in Alpharetta and Roswell. Its main clients are large corporations, such as BellSouth Telecommunications, Delta Air Lines Inc. and Ford Motor Co.

The company's stock price has ridden a roller coaster during the past year, ranging from $7.13 to $17.25. It closed Sept. 15 at $8.69.