Micron Plan Targets Government Growth

Micron Plan Targets Government Growth

By Richard McCaffery
Staff Writer

Micron Electronics Inc. is taking steps to correct problems stemming from execution of its business plan and past management, including the appointment of an industry veteran to beef up its government sales.

On June 10, Micron announced it had hired Harry Heisler as vice president and general manager of the company's newly formed public sector division. Heisler wants Micron's public sector unit, which includes federal, state and local government customers, to generate $1 billion in sales in three years.

About $300 million of Micron's $1.9 billion in sales last year came from federal, state and local governments, according to company officials.

"We stumbled into the results we've had based on hard work from our sales force," Heisler told Washington Technology. "We're now saying at the highest level of the company that the government is an important segment."

Heisler, 45, worked at computer reseller Government Technology Services Inc., Chantilly, Va., for 10 years and then as an industry consultant before joining Micron. He declined to disclose how many people he plans to hire or to project sales for 1998.

"We will be putting in an aggressive plan for 1999," said Heisler. "I expect we will be a significantly larger organization next year than we are today," he said about the federal division, which has no dedicated sales force.

The federal government generated about $200 million of Nampa, Idaho-based Micron's $1.9 billion in sales last year, company officials said.

Competition, poor execution and plummeting computer prices pricked Micron's growth over the last year, analysts and company executives said. During the second quarter of 1998, for example, the price of Micron's notebook computers dropped below what it costs the company to make them.

"What was very clear was the company had great products but was not executing the direct sales model," said Joel Kocher, Micron's president and chief operating officer.

Sales for the second quarter, which ended Feb. 26, dipped to $495 million, a 3 percent decline from sales of $510 million for the same period a year ago. Net income for the second quarter was $24.8 million. In 1997, Micron had net income of $87.3 million.

The company's stock hit a 52-week low of $8.43 in January and is now trading at about $12 a share.

"They're really trying to play catch up with Dell and Gateway," said Scott Butler, a research analyst at Pacific Crest Securities, a Portland, Ore.-based business research firm.

"They experienced quite favorable growth when the computer market was a little younger," he said. "When prices started falling dramatically, it impacted them significantly."

Butler said the company started slipping about a year ago. Still, he said it has made some smart changes to stay competitive, such as hiring Kocher. The 41-year-old Kocher worked at Dell Computer Corp., Round Rock, Texas, from 1987 to 1994 as president of worldwide marketing, sales and service.

In the last six months the company has replaced much of its senior management team and transferred about 10 percent of its work force - 450 people - to its parent company, Micron Technology Inc., Boise, Idaho. Micron Technology, which makes semiconductor products and had sales of $3.5 billion last year, owns 64 percent of Micron Electronics.

"They're really trying to refine their model," Butler said. "The good news is they have a solid balance sheet and several hundred million dollars in reserves. But it's a little too early to declare victory."

Kocher said the company has reduced the amount of time it holds inventory from an anemic 38 days to "within hailing distance of Dell and Gateway," which clear out their inventories every seven days.

"We've been able to re-establish the competitiveness of our price," Kocher said.

Now Kocher is counting on the strength of the direct sales model, a redefined focus and a big advertising campaign to get Micron back on the fast track. The company is focusing on three kinds of customers: corporate, public sector and small businesses/consumers.

Robert Toomey, a research analyst at Piper Jaffray Inc., Minneapolis, said the company is headed in the right direction.

"They have very strong products and their management is improved," Toomey said. "It's a risky play, but we rate it a strong buy."

Despite weak performance in many areas, Micron has had consistent growth in the government sector, Kocher said. Micron is a subcontractor to Raytheon Co. on the Air Force's Desktop V contract. Sales under this contract represented 1.5 percent of the company's total PC sales in the second quarter of 1998 and 5.1 percent of total revenues from PC sales so far this year.

From 1996 to 1997, Micron's PC sales to the government jumped from $59 million to $119 million. Its GSA schedule sales in 1997 for all of its products were $133 million, up from $22 million in 1996, according to Bob Dornan, senior vice president at Federal Sources Inc., McLean, Va.

Only Dell; Gateway, North Sioux City, S.D.; and Government Technology Services Inc. sold more products on the GSA schedule last year, Dornan said.

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