Reseller Division Takes New Tack in Government Market

By Richard McCaffery, Staff WriterCDW Computer Center Inc., which made a name for itself in the commercial market with its direct sales approach, is using teaming arrangements with systems integrators as the cornerstone of a new government thrust."We were doing a bunch of business with commercial integrators, but we didn't really target the government integration community," William Shafley, CDW Government Inc.'s vice president of sales, told Washington Technology. "We have started that now. That's the biggest difference," said Shafley, who heads the government unit, which formed in September.The government division, based in Chantilly, Va., has signed agreements with two systems integrators since January and wants to team with others in the near future. Shafley declined to identify the two integrators, citing nondisclosure agreements.In the past three months, sales that go through integrators have risen from 3 percent to 6 percent of the company's business, and should hit 25 percent by the end of next year, said Shafley. CDW did $100 million worth of business in government and education markets last year and is on pace to do $140 million this year, he said.The new division also is eager about a budding relationship with networking giant Cisco Systems Inc., San Jose, Calif., that has been in the works since June. Shafley said the relationship, which would allow CDW to resell Cisco equipment, is important because of the high demand for Cisco products. "Everybody is asking for Cisco," Shafley said.Paul Cantwell, Cisco's director of federal channels, said Cisco hasn't finalized its arrangement with CDW Government. "We're having very positive discussions," but they are still in the preliminary stages, he said.Founded in 1984 by Michael Krasny, CDW's chairman and chief executive officer, the Vernon Hills, Ill., company sells more than 80,000 computer products to over 600,000 customers in the United States.The company has sold computer products to the government for 14 years but just announced the formation of a government and education division in September. Its federal business is divided evenly between civilian and military agencies, Shafley said. Customers include the Social Security Administration, the Treasury Department and the Air Force.Since June, the company has landed one-time deals with more than nine agencies, Shafley said. Last month, the company won a $1.7 million contract to provide an agency within the Defense Department with notebook computers and accessories. CDW Government hasn't yet publicly announced the contract, so Shafley declined to disclose further details. Commercial customers include companies such as Motorola Inc. of Schaumburg, Ill., Abbott Laboratories of Abbott Park, Ill., and growth companies like price line.com LLC, Stamford, Conn. The 1,400-employee company sells products over the phone, online and in catalogs. It started selling online in April 1996 and expects to exceed $100 million in online sales this year.Chuck McDonald, research analyst at the investment banking firm William Blair & Co. LLC of Chicago, expects the company to excel in the public sector. "The government is something they have dedicated resources to," he said. "I think they'll be successful, because everything they go after, they go after seriously."One of CDW's strengths, McDonald said, is operational efficiency ? managing assets like cash, accounts receivable and inventory. "This is a company that's grown tenfold in the five-plus years I've followed them," McDonald said. "There are only a few companies that have had as rapid growth and maintained positive cash flow." CDW had $82 million in cash June 30, along with sales for the second quarter of $408 million and income of $15.5 million. This was up from sales of $304 million and income of $12.7 million from the same period a year earlier.The company had $1.3 billion in sales last year, up from $927.8 million in 1996. Net income for the year was $51 million, or $2.35 a share, up from $34.4 million and $1.58 a share in 1996.But Payton Smith, an analyst at Federal Sources Inc., McLean, Va., said the company faces an uphill battle increasing its marketshare in the government. "The reseller business is a tough business to be in right now," he said. "There are a lot of resellers in the government, and they're not doing well. It's too hard to compete on price. You have to distinguish yourself somehow."CDW has made a name for itself in catering to small and midsize businesses. According to Shafley, for the last two years the company's average order has been $704, compared to industry averages that range from $1,400 to $2,200. "Our business is built on small orders like that," said Shafley, a former executive at Government Technology Services Inc., Chantilly, Va.This small-order focus won't keep the company from stretching its wings in the federal government, Shafley said. One of the ways CDW Government is looking to make an impact is by teaming with integrators on some of the government's largest contracts, such as the $10 million Information Technology Omnibus Procurement 2 award, and the $13 million Outsourcing Desktop Initiative for NASA. "We haven't been doing the big deals," Shafley said.