SMAC Stakes Out Systems Integration Role

SMAC Stakes Out Systems Integration Role

Founder Eyes Acquisition Within 18 Months, Public Offering Within Two Years

By Richard McCaffery
Staff Writer

SMAC President Ashok Mehan with Rolin Hua,
the company's vice president of corporate development

Photo by Michael Carpenter
Ashok Mehan was toiling away in a $15,000-a-year, manager-in-training job at McDonald's when he got the urge to make a change.

While counting hamburger patties and eggs in the fast-food restaurant's freezer 13 years ago, he decided to veer off the hotel and restaurant career track. That decision led to an entrepreneurial career in the computer business.

At the time, he did not have enough money to buy a PC. But "I had to get out of the hotel and restaurant business," Mehan told Washington Technology.

Today he owns 51 percent of privately held SMAC Data Systems, a computer manufacturing company with 1997 revenues of $24.3 million, up from $12.7 million a year earlier. He also is the company's president.

Founded in 1990, the Gaithersburg, Md.-based company now sells products, ranging from $1,000 PCs to $30,000 servers, directly to the federal government and indirectly through systems integrators.

About 60 percent of SMAC's revenues last year came from direct sales; 30 percent came from sales to integrators, Mehan said.

State and local governments and commercial companies made up the remaining business last year.

About 90 percent of the computers SMAC builds today end up on federal government desktops. When working around the clock, SMAC's factory can turn out 75,000 PCs a year, according to Mehan.

Mehan has big plans for SMAC. He expects the company to reach $100 million in sales by 2001 and plans to take it public within two years.

To help reach those goals, he is shifting the company's business strategy to add system integration services that some of his toughest competitors lack.

Those competitors include industry giants like Dell Computer Corp. of Round Rock, Texas, and Compaq Computer Corp. of Houston.

Mehan said he is shopping for companies with integration capabilities and expects to make an acquisition within 18 months, though he is not currently in negotiations with any company.

"We want to be a manufacturer, but a manufacturer that provides solutions," said Mehan. "That's where the market is heading.

"I want to add value to this business," he said. "When I hit the [public markets], I want the public to know we have not only a manufacturing business but integration services."

Mehan, who emigrated from India in 1983 with a degree in hotel and restaurant management, got a master's degree in management of information systems from Marymount University in 1987, and a job as a warehouse manager at an Arlington, Va., computer company.

SMAC (Sales & Marketing Assistance Corp.) Data Systems initially was a computer distribution company. It sold less than $1 million worth of equipment in 1991 but had $14 million in sales by 1995.

But Mehan dropped out of the distribution business in 1995 because many of his reseller customers were being crushed by competition.

"The dealer channel was being reduced," he said. "It was a difficult business."

"SMAC is a small company that thinks like a big one, and that's the only way to grow," said Payton Smith, a research analyst at IDC Government, Falls Church, Va. "They're doing everything right."

SMAC, a minority-owned business, joined the 8(a) program in 1996. Under that program, the government grants special contracting opportunities to minority-owned businesses to foster growth and competition.

SMAC will graduate from the program in 2005.

Some minority-owned businesses have struggled getting out of the government cradle. Mehan is not concerned.

"Not a single dollar of revenue came from the 8(a) program last year," he said. "There was full and open competition on all of our awards. ... Since our roots are in competition, I'm not worried about landing on my feet."

Smith agreed. "I think they're putting enough emphasis on the GSA [General Services Administration] schedule," he said. "That's where the future of PC sales is going, and they recognize that."

In addition to pursuing multiple deals with the government to broaden its customer base, the Web site SMAC is setting up, which will allow customers to shop online for products, "is similar to what you'd see from Dell," Smith said. "It indicates they're headed in the right direction."

SMAC, which employs up to 65 workers during the government buying season and plans to grow to 100 through acquisitions, has emulated Dell's direct-sales approach to selling computers. "We've had some decent success," Mehan said.

Smith said SMAC's biggest obstacle is name recognition. "Government users feel more comfortable with a familiar name like Dell," he said. "It's really going to be a question of establishing their brand name. It hinges on that."

Bob Dornan, senior vice president at Federal Sources Inc., McLean, Va., said the jury is still out on how well SMAC will be able to compete against large manufacturers.

"The current procurement environment is generally stacked against small manufacturers because of the ease at which any agency can buy large quantities of equipment off the schedule from any manufacturer they choose," Dornan said. "You really have to be in the face of the buyer on a daily basis." So far, the company is on the right track, he said.

Among SMAC's more recent contracts are a $2.5 million deal to lease 1,045 computers to the Military Sealift Command worldwide.

In March, SMAC won a spot worth about $5 million as a subcontractor on NASA's Scientific Engineering Workstation Procurement 2 contract.

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