Dell Eyes Larger Chunk of Federal Business

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Dell Eyes Larger Chunk of Federal Business

By Nick Wakeman

Staff Writer

Dell Computer Corp. is pursuing additional partnerships with defense contractors and hiring more support and sales staffto boost its military share of the federal market.

Although the Austin, Texas-based company is a leading supplier of desktop units, company officials want to expand their business in 1997 with the U.S. Department of Defense.

Robert McFarland, who became vice president of federal sales and marketing four months ago, estimates that 60 percent of Dell's federal business is with civilian agencies and the remainder is defense-related.

"We've been heavily focused on the civilian side," he said. His goal is for a 50-50 split.

While the company is loath to reveal how much revenue it earns from federal sales, some analysts estimate it could be $1 billion of the company's $7.5 billion in sales for 1996.

Not a paltry amount, "but I don't think we are doing as much on the defense side as we should," McFarland said.

When a sector gets to the billion-dollar revenue level, Dell becomes more interested in focusing on that sector, said Lou Mazuchelli, an analyst with Gerard Klauer and Mattison, New York.

Dell's Robert McFarland

Dell is a subcontractor on about 50 indefinite-delivery, indefinite-quantity contracts including Ashburn, Va.-based Telos Corp.'s Small Multi-User Computer II contract with the Army.

One way Dell will be pursing more government customers is by adding its Dimension product line of desktop computers to the General Services Administration schedule.

Changes in procurement rules are bringing a new type of government customer to the GSA schedule. This customer is more technology-savvy and wants to buy the most current products, McFarland said.

"There are two markets out there now," McFarland said. One wants the hottest technology and is the target audience for Dimension. The second sector wants to buy products that are compatible with what they bought 18 months ago and are not interested in the new bells and whistles.

Dell's OptiPlex line of desktops is targeted toward these buyers and has long been available to the government through contracts, broad purchasing agreements and the GSA schedule.

While the idea of segmented product lines targeted to different types of customers is nothing new in the commercial world, the approach is not common in the federal market, analysts said.

Selling cutting-edge technology to government users was difficult under the old procurement rules because equipment can become obsolete during the time it takes to award a new contract or update an existing contract, said Rocky Mountain, Dell's manager for federal marketing.

Updating products on the GSA schedule also was more time-consuming, he said.

The late-April announcement that Dimension would join OptiPlex on the schedule "is a natural kind of thing for Dell to be doing," said Mazuchelli.

"The approach is consistent with their commercial strategy," he said.

Dell expects Dimension sales to make up about 50 percent of its GSA desktop sales, Mountain said. GSA sales are becoming more important to Dell, Mountain said, because information technology spending on the schedule is growing faster than the rest of the government market.

Dell's build-to-order model and inventory control methods give it an advantage over other manufacturers such as IBM Corp., Armonk, N.Y., and Compaq Computer Corp., Houston, which rely more on distributors, said Charlie Wolf, an analyst with CS First Boston, New York.

The Dell model "can greatly reduce the cost of acquisitions for the government," he said.

Dell's real competitors on the GSA schedule will be the large resellers such as Government Technology Services Inc., Chantilly, Va., Mazuchelli said.

But just because Dell is increasing its emphasis on the GSA, McFarland said, working with prime contractors and 8(a) companies will remain an important part of the company's strategy.

"Contracts are not leaving the environment," he said. "Fifty percent of the business in the federal sector is through contracts." Teaming with systems integrators will remain very important to Dell.

McFarland also sees more changes in procurement rules on the horizon. "The government is looking for more and more ways to make it faster and easier to buy products," he said.

Besides GSA and agency chief information officers pushing for a more commercial-like market, short product life cycles now make flexibility more important, he said.

Ten or 15 years ago, products had a life cycle of three or four years, and then there was an after-market in Europe or Asia, McFarland said. Now that life cycle is down to as short as six months and there is no after market.

"You've got to change your business to cope with that," he said.


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