Bell Micro Chief Forecasts Government Sales Surge

Bell Micro Chief Forecasts Government Sales Surge

By Richard McCaffery
Staff Writer

Bell Microproducts Inc. President Donald Bell expects his company's fledgling government division to double its revenues after storage solutions sales are tallied for 1998.

Government sales should soar from just 5 percent of total company revenues in 1997 to about 20 percent, or more than $120 million, during the next two years, Bell told Washington Technology.

"It's a very achievable and realistic goal," said Bell, who expects the company's line of storage products, which are now being packaged to offer resellers more complete solutions, to propel the growth.

In addition, the San Jose, Calif.-based company is in the hunt for companies it can buy to break into new markets and expand its product line.

"We're actively looking for acquisitions," said Bell, an electrical engineer who got his start in the aerospace industry. "We're just looking for the right partner."

Bell Micro posted about $30 million in sales to government resellers in 1997. The company had net sales of $533 million in 1997, a 10 percent increase from 1996.

Founded in 1987, Bell Micro distributes computer and semiconductor products from 82 manufacturers to resellers and integrators nationwide.

The company, which has about 650 employees, is a niche distributor, specializing in sales of storage products such as disk drives and other memory devices.

"That's why the government market is so hot for us," Bell said. "The government needs a lot of memory."

Bell Micro's primary competitor in the federal government market is Decision Support Systems (DSS), Reston, Va.

In addition to distribution, which accounts for about 80 percent of Bell Micro's business, the company also builds electronics equipment that it sells to manufacturers.

So-called contract manufacturing has increased as manufacturers cut costs by outsourcing products.

Donald Bell
Bell Micro started focusing on the government market in 1996, selling about $5 million worth of disk drives, microprocessors, system boards and other computer products. Bell Micro's government facility in Columbia, Md., opened in 1996.

"The momentum is starting to build for us," Richard Bernhard, Bell Micro's government sales manager, said in an interview.

The company has solidified its relationships with integrators such as Vanstar Corp., Pleasanton, Calif.; Electronic Data Systems Corp., Plano, Texas; and BTG Inc., Fairfax, Va. It plans to use these relationships to gain a bigger slice of government marketshare.

"That's the key," Bernhard said. "Now the effort is to build on this to become a more dominant supplier to a broader range of resellers and integrators."

The company's government unit, which has about 14 employees, is the only one with a dedicated sales force. Rod Braido, the company's vice president of sales, said he expects to nearly double the number of employees at the government unit this year.

While Bell Micro's government and distribution businesses have grown, the company's manufacturing unit has stumbled badly, analysts said.

Tom Cal, a research analyst at Stamford, Conn.-based SoundView Financial Group, said Bell's manufacturing business has been losing money since last year due to product delays and lost customers.

"The company on an operating basis has been profitable, but it would have been a lot more profitable if its contract manufacturing division wasn't losing money," Cal said.

The company's stock closed May 21 at $7.87, near its 52-week low of $6.75 reached last December. Over the last 12 months the stock price has ranged from $6.75 to $12.25 a share.

Earnings per share dropped from 27 cents in March 1997 to 2 cents a share in the first quarter of 1998, said Kesha Martin, an associate analyst at Sutro & Co., a San Francisco-based brokerage firm.

The last two years have been tough for distributors of semiconductors and computer storage products such as disk drives, Martin said. "The downturn in both of these markets has really affected Bell Micro's bottom line," she said.

But Bell said the company has shown its ability to make money in tough times. "We've grown our business even though the disk drive industry is very competitive," he said. The company's distribution business increased its revenues 18 percent last year, Bell said, and its overall profits jumped 29 percent. Bell expects profits to grow 20 percent in 1998.

Martin and Cal expect new contracts to boost earnings at the company's manufacturing division.

Both think the unit will reach a break-even point in the fourth quarter, and Cal said in a recent financial report that the unit has the potential to generate $250 million in annual revenues. He has given the company a buy rating.

"The stock is cheap relative to its underlying book value," Cal said.

To boost government sales, Bell Micro is betting on an enhanced line of memory devices, 155 items the company bundles to offer a more complete product. Like many distributors, Bell Micro is looking to increase its margins and customer allegiance by selling solutions in addition to bare products such as disk drives.

"Let's just say we find it much more profitable," Bell said.

Asked about Bell's government market focus, Bernard said, "If we don't focus on the government, we would be ignoring 16 percent to 19 percent of the total IT market."

Bell Microproducts Inc.

Business: Distributor of computer and semiconductor products and manufacturer of computer parts
Headquarters: San Jose, Calif.
Founded: 1988
Number of Employees: about 650
Total Revenues 1997: $533 million
Government Revenues 1997: $30 million
Anticipated Government Revenues 1998: $50 million to $60 million

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