Pulsar Data Systems

Pulsar Data Systems

William Davis, CEO
Lanham, Md.
Contracts: $39.722 million

Profit margins should rise from the low single figures up toward 15 percent as Pulsar Data Systems Inc. steers itself toward the services business, predicts William Davis, the company's CEO and sole owner.

In 1996, services accounted for only 20 percent of the Lanham, Md.-based company's $166 million in revenue, the balance of which was generated by its resale of computer equipment and services to government agencies.

But this ratio will be shifted to almost parity by the end of 1998, predicted Davis.

To speed the shift, Davis is creating a new services division to be headed by Christopher Jones. The new division will specialize in Internet work, imaging technology, high-capacity communications switching technology, network management and integration contracts, he said. The company's increased work in the service sector should boost its employment rolls past 150 people, and also increase profit margins, Davis said.

Pulsar quit the 8(a) program in June - six months before its nine-year term ended - because strict supervision by the Small Business Administration made the program "more of a hindrance to us," said Davis.

"There has been some concern about the size of the company," said an official with the Small Business Administration, which oversees the 8(a) program. In 1996, the SBA redirected $6.7 billion from numerous agencies' procurement budgets to foster the growth of roughly 6,000 minority-owned businesses in the 8(a) program. Companies are forced to leave the program after nine years, or once they grow larger than a small business, which is defined by the Commerce Department, or if their owner has a net worth of more than $750,000, excluding the value of a personal residence or the company.

In the nine years since Pulsar joined the 8(a) program in 1988, Pulsar has won roughly $275 million from 8(a) government contracts, boosting its 1996-97 8(a) revenue to $39.7 million, according to General Services Administration data analyzed by Input, a market research firm based in Vienna, Va.

One explanation for the GSA's low estimate of Pulsar's 8(a) revenue is that the GSA data only records contracts worth more than $25,000. But many reselling contracts are worth less than $25,000 and may not be reported, he said. Those smaller contracts "could be a huge chunk of what they have," said Bill Young, an analyst at Input. "The data is a representation. It is by no means what is being spent," he said.

In 1996, Pulsar's overall revenue reached $166 million, only 5 percent of which was won from commercial customers. Commercial work should grow to almost 10 percent by the end of 1998, Davis said.

This year, 8(a) work has dropped precipitously to only 10 percent of the company's 1997 revenue, down from 60 percent in 1996, said Davis.

One reason for the drop is that Pulsar has persuaded several agencies to shift their purchases of software and computer equipment to Pulsar's conventional contract with the GSA, and away from Pulsar's former 8(a) contracts, said Davis. Reduced red tape has made the GSA contract just as convenient for agency officials as Pulsar's old 8(a) contract, he said.

While in the program, Pulsar's 8(a) contracts allowed it to resell computers and software produced by major vendors to government agencies. These contracts minimized red tape for civil servants, so they generated a large volume of sales, although providing only a low profit margin in the "medium single digits," Davis said.

However, new government procurement rules introduced during the last few years have helped minimize the red tape in Pulsar's GSA contract, so easing agencies' transition from the 8(a) contracts, said Davis.

Also, Pulsar is keeping its fingers in the 8(a) program with the help of five affiliate companies, all of whom are in the 8(a) program. This Pulsar Affiliate Program was started in a 1991 alliance with IBM Corp.

Since 1989, Pulsar has worked closely with IBM, earning it the "IBM Business Partner of the Year" in 1990 and serving as IBM's sole Advanced Products Dealer in the 8(a) program, according to Pulsar's corporate capabilities statement.

According to Davis, Pulsar helps its five affiliate companies win new 8(a) contracts, and then performs up to 49 percent of the contract's work as a subcontractor. "What is in it for us is business that we don't qualify for directly," he said.

For example, Pulsar should get a large share of two new government contracts - worth up to $8 million over three years - that had to be given up when Pulsar left the 8(a) program, said Davis.

Davis said he hopes to grow the company and to pass day-to-day control over to a top-flight management team, freeing him to work as a business and financial consultant. "I hope to do it before [age] 50," said the 46-year-old Davis.

- Neil Munro

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