Young Stronger
Young: Stronger GTSI to Emerge From Red Ink Dendy Young, president of GTSI By Richard McCaffery Staff Writer Government Technology Services Inc.'s $23 million acquisition of rival BTG's reselling business should yield the reseller sales of $800 million in 1998, GTSI executives said. This amount, which includes the reselling
Young: |
Dendy Young, president of GTSI |
Staff Writer
Government Technology Services Inc.'s $23 million acquisition of rival BTG's reselling business should yield the reseller sales of $800 million in 1998, GTSI executives said.
This amount, which includes the reselling assets of Fairfax, Va.-based BTG, would represent more than a 60 percent increase from GTSI's sales of $486 million in 1997, according to Dendy Young, GTSI president.
GTSI at a Glance |
1997: |
Sales: $486 million |
Net loss: $5.1 million |
1996: |
Sales: $492 million |
Net loss: $17.8 million |
1995 |
Sales: $527 million |
Net loss: $7.2 million |
1994: |
Sales: $617 million |
Net income: $2.6 million |
New federal purchasing laws have changed the way the government buys products, and some manufacturers that once relied on companies like GTSI to insulate them from complicated government buying rules now sell directly to end users.
"Resellers are going to get maimed," Meagher said.
But Young, who is sticking to the company's reseller strategy, said GTSI offers more products and services at a better price than wildly successful companies like Dell Computer Corp., Round Rock, Texas, which uses a direct model.
"Dell has to have a distribution function and they have to have a reseller function," Young said. "I can and do compete with Dell everyday and win" in terms of price, he said.
Dell officials could not be reached for comment.
Not everyone believes it. "It has to be looked at on a case-by-case basis," said Neal Johnson, an analyst at investment bank Robinson-Humphrey Co. Inc., Atlanta. Typically, Dell's prices are 10 percent to 15 percent cheaper than those of competitors Compaq Computer Corp., Houston, and IBM Corp., Armonk, N.Y., Johnson said.
But the price gap is narrowing because of Dell's enormous gain in market share, he added.
In its 1998 annual report, Dell claimed it is the second-largest manufacturer and marketer of personal computers in the United States and No. 3 worldwide.
Dell reported total sales of $12.3 billion for fiscal 1998. That's a 59 percent increase from $7.8 billion a year earlier.
Paul Krieg, an equity analyst in Philadelphia for Legg Mason Inc., agreed that GTSI can turn a profit this year as a result of the acquisition and through efforts to keep down costs and increase gross margins.
"I think we've started to see some changes," Krieg said.
GTSI's net losses for the first quarter of 1998 were $3.5 million, up from $3.4 million a year earlier.
That included a $1 million charge related to the BTG deal.
"They had substantial disruptions in operations and were still able to trim losses," Krieg said. "We were impressed they were able to do that."
In addition, GTSI reported a backlog of about $70 million in the first quarter of 1998, an 80 percent increase from the same period last year largely because of the BTG acquisition.
Krieg, who expects GTSI earnings of 16 cents a share for 1998, is not ready to rate the stock a buy. "We need to wait and see, but I think the fundamentals are there," Krieg said.
As part of the integration of the two companies, GTSI has gained 167 former BTG employees.
Young said the company was able to absorb those workers without any increase in facilities costs, in part because it laid off 15 of its own employees, including three vice presidents.
GTSI, which now has roughly 500 employees, also added 121 new vendors through the acquisition and key contracts.
They include BTG's S2 PC/LAN contract with the Department of State and its Army PC 2 contract, which Young said are worth about $100 million a year.
"The Army PC 2 contract is particularly attractive because it filled a gap in our coverage," he said. "We didn't have the ability to sell the Army PCs."
Over the last two years, Young has spent $6 million to revamp the company's information infrastructure, including an automated inventory management system and new financial software.
"We've had to keep the company going while we made major repairs," Young said. "That's a difficult process."
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