Inacom Purchase Strengthens Micron's Government Hand

By Nick Wakeman, Staff WriterThe acquisition by Micron Electronics Inc. of the government unit of Inacom Corp. enhances the services capabilities of the Nampa, Idaho-based PC maker and positions it to pursue more contracts that demand skills in seat management, leasing and professional services."We want to use our direct model of doing business to deliver more than boxes," said Harry Heisler, vice president and general manager of Micron Government Computer Systems Inc.Like its main competitors Dell Computer Corp. and Gateway Inc., Micron sells its products directly to its customers rather than through resellers.With the April 11 purchase of Inacom Government Computer Systems Inc., the company bolsters its capabilities in life-cycle management skills, such as managing acquisitions, logistics, delivery and installation, customizing products and disposing of old products, Heisler said. Terms of the acquisition were not disclosed."We have made a lot of gains in these areas, but Inacom helps us get there faster," he said.Inacom, which had about $119 million in 1999 revenue, also brings business like the Veterans Affairs Peaches contract to provide computers, software and network services to the VA. Inacom also holds several other contracts with the Army and the departments of Defense and Treasury.For the Inacom unit, being acquired may mean finally getting a permanent home and a parent that values the government market. The Inacom government unit traces its roots back to Sysorex Information Systems of Fairfax, Va., which was acquired by Vanstar Corp. in July 1997. In February 1999, Vanstar and Inacom of Omaha, Neb., merged to form a $7 billion reseller and IT services company.The old Sysorex unit represented nearly all of the government work that Inacom had and got little attention from its parent. Several months ago, Inacom announced it would sell the unit as it concentrated on core commercial markets and bolstered its electronic commerce capabilities."It was just such a niche at Inacom that it didn't make sense for them to understand the government market," Heisler said.That won't be a problem at Micron, which had $1.44 billion in 1999 revenue, of which $410 million came from government customers, according to Heisler."The company's financial quarters rise and fall with our performance," he said. "Sure, that puts pressure on us, but we get resources. I have a significant seat at the table."That Micron wanted to buy Inacom's government unit was not a surprise, analysts said.Micron has struggled in some commercial markets, but "the government has been a hot spot for them and they are looking to expand in those areas," said Jimmy Johnson, an analyst with the investment banking firm A.G. Edwards Inc. of St. Louis.Micron also wants to move beyond just being a commodity seller of computers, Johnson said.The company's stock closed at $11 on April 20 and has ranged from a low of $9 to a high of $20.69 over the past 12 months.The government unit's revenue of $410 million in 1999 was $90 million more than its 1998 revenue, Heisler said."I really think that the government is going to settle into two types of suppliers," Heisler said. "One will look like eBay and the other will look like a partner."Micron wants to play the role of partner, and picking up the Inacom government unit will help it play that role, he said."We picked up some very qualified people," Heisler said.Among the 50 Inacom employees that are now part of Micron is Mark O'Donnell, who ran the Inacom government unit. "He dates back to the glory days of Sysorex," Heisler said.Heisler and O'Donnell also have known each other for many years, which will help the process of integrating the acquisition into Micron. "We handled the issues of truth and trustfulness 15 years ago," Heisler said.O'Donnell brings strong bid and proposal skills to Micron, said Richard Knop, a partner in the investment banking firm Boles, Knop & Co. in Middleburg, Va. Knop represented Sysorex in its sale to Vanstar.Under O'Donnell, the unit won several important contracts including the VA Peaches contract and the Army's Personal Computer I, II and III contracts. "He is a real pro," Knop said.In addition to wanting to provide more services to support the hardware and software government customers buy, Micron also is moving toward new services such as Web hosting and electronic commerce, Heisler said."We are evolving ourselves," he said. "The hardware is important to us but at the same time the computer means less. We want to be a computing company, not a computer company."