EdgeMark Rolls Out Integration Services
EdgeMark Rolls Out Integration Services
By Bob Starzynski
EdgeMark Systems Inc. of Silver Spring, Md., which has rocketed to become a $100 million company in five years by reselling computer equipment, is pushing its way into systems integration.
To date, the privately held company has depended on an exclusive reselling agreement with Silicon Graphics Inc. of Mountain View, Calif., for all of its government business revenue. In 1997, that business garnered more than $80 million.
The company will have its integration services on the General Services Administration's schedule by early March, company officials said.
"Becoming an integrator is a big step for us," said Pete Celano, director of business development for EdgeMark. "Integrators are not as dependent as resellers on vendors."
EdgeMark President Lee Raesly
EdgeMark President Lee Raesly hired Celano last month to head the company's services initiative. Celano previously worked in a similar role at FileTek Inc. in Rockville, Md.
The company's engineer count has swelled from three to 10 and that number is expected to exceed 20 by year's end.
"What is interesting is that they are going into this integration business through internal growth," said Richard Leggett, an information technology analyst with Friedman, Billings, Ramsey & Co. in Arlington, Va.
"Most resellers are going into integration, but most are doing it through acquisition. [EdgeMark] may be swimming upstream compared with the acquisition approach," Leggett said.
EdgeMark did minimal integration until recently. But company officials realized the systems they were selling required outside integration work. Said Celano: "Why shouldn't we do that work, too?"
In Celano's estimation, services accounted for less than $2 million of EdgeMark's 1997 revenue of $100 million. By the end of this year, more than 10 per- cent of EdgeMark's revenue should come from integration services, Celano said. "Longer term, we see ourselves as more of an integrator than reseller." Most of EdgeMark's sales have come through its GSA schedule sales of Silicon Graphics products to many government agencies.
By buying an established integration business, a traditional reseller can reach critical mass quickly, Leggett said.
Just last week, government contractor BTG Inc. in Fairfax, Va., completed the sale of its reselling business to competitor Government Technology Services Inc. in Chantilly, Va., so that it could work exclusively in the higher-profit-margin integration business.
Celano said EdgeMark is not ruling out the possibility of an acquisition but added that no such plans are currently on the table. "It's not that we're moving timidly into this market," he said.
All along, Raesly has said that EdgeMark is not going to sever its exclusive GSA reselling agreement for Silicon Graphics' desktop workstations and servers. However, by diversifying with services and other product offerings, EdgeMark can keep risks in balance should sales of Silicon Graphics' products decline.
Silicon Graphics sales have been especially strong over the past two fiscal years, increasing more than 25 percent each of those years. But there are several weak links in the company's chain. Following several disappointing quarters of losses, the company's chairman/ CEO and executive vice president resigned in October. The same day, the company announced a restructuring that included plans to increase its focus on the government market.
The more Silicon Graphics equipment sold to the government, the more integration that needs to be done with that equipment, Celano said.
"Resellers that don't integrate leave too much money on the table when they make a deal," Leggett said. "Integration is where the money is. I imagine [EdgeMark's] customers were saying, 'Gosh, I love you guys and wish you could offer a complete solution,'" he said.
Another benefit of entering the integration market is the company's valuation, Celano said. "Resellers are not worth what integrators are worth," he added.
Although EdgeMark does not have any current plans to go public or sell the company, many companies with revenue of more than $100 million in the information technology industry are turning to the public markets or merging with other companies.
Concluded Celano: "Stay tuned. This will be a major part of our business."