Sterling, Va. Company Charts Its Plans for Growth

Dunn Speeds Consolidation Efforts


Tom Dunne, president and CEO of
Dunn/IDP Computer Corp.

Sterling, Va. Company Charts Its Plans for Growth

By Richard McCaffery
Staff Writer

The planned consolidation of Dunn/IDP Computer Corp.'s manufacturing and engineering units, along with fresh layoffs at its Gaithersburg, Md., unit, should save about $3 million annually, top company officials said.

"We made a commitment to our stockholders that we would get expenses in line and meet our model," Thomas Dunne, president and chief executive officer of Sterling, Va.-based Dunn/IDP Computer Corp. told Washington Technology this week. "We've got to do it fast."

Dunne said the 40 or so production workers, customer service personnel and engineers let go from IDP's Gaithersburg plant, along with consolidations in the company's manufacturing and engineering units, will accelerate the melding of Dunn's operations with IDP, which it acquired for $22 million May 1.

Dunne, 55, who founded Dunn Computer out of his own pocket in 1987, has set high goals for the new company. He expects a gross of $150 million in sales for fiscal 1998, which ends
Oct. 31. By fiscal 2001, he said that number should reach $400 million.

He also wants to grow the company's consulting business to support its profitable line of servers. Last September, Dunn acquired Solutions That Make Sense (STMS), a Reston, Va., information technology services company. It gave Dunn Computer a new set of skills and increased its staff by 35.

Dunne expects to buy additional services companies in the next 12 months.

Dunn Computer changed overnight when it bought privately held IDP, going from a publicly traded company with 100 employees and $21.7 million in 1997 sales to one with about 300 employees and $93.6 million in sales. After the consolidation, Dunn/IDP will have about 260 employees.

IDP manufactures and sells desktop and portable computers, servers and related products mainly to federal and state governments. Dunn's business is very similar. It manufactures computer products ranging from $1,000 PCs to $200,000 servers.

Thomas Meagher, equity analyst at Ferris, Baker Watts Inc., Baltimore, said consolidations will help the company focus on profitability.

"It's an acceleration of the strategy they laid out," said Meagher, who was not surprised to see the company moving faster than expected.

"There's no point in dragging it out," he said. "They had been working with IDP prior to the acquisition to get things started." Ferris, Baker helped Dunn underwrite a recent stock offering.

About 90 percent of the computers Dunn sells go to the federal government, either through direct sales or systems integrators, like Computer Sciences Corp., El Segundo, Calif., and Unisys Corp., Blue Bell, Pa. This mix will not change with the acquisition of IDP.

"We focused on the federal government for a good reason," Dunne said. "They always pay their bills, and we can't afford bad debt."

Dunn doubled its customer base with the IDP purchase, adding about 500 customers and key contracts including Navy IT 21, a multimillion-dollar effort to provide naval ships and bases with new workstations, notebooks and servers.

It added manufacturing plants in Gaithersburg and Guayama, Puerto Rico. The new company can manufacture $300 million worth of computers a year, company officials said.

Dunne is consolidating manufacturing services at the company's headquarters in Sterling and in Puerto Rico. IDP's Gaithersburg plant, which used to produce notebooks, desktops and servers, will only make notebooks. Also, engineers at Guayama will move to Gaithersburg, and Dunn/IDP's corporate offices will be in Sterling.

Analysts like the combination of IDP's fast growth and Dunn's senior management team.

"From a strategic point of view, it makes sense to consolidate companies in the government sector," said Louis Mazzucchelli, vice president of research at investment bank Gerard Klauer Mattison & Co. in New York. "You want to bulk up to protect your turf, and you also need to be bigger to go after the big contracts." Gerard Klauer Mattison helped underwrite Dunn's recent stock offering.

The two companies talked about merging
for more than a year, but Dunn did not have enough money to buy its bigger rival. In April 1997, the company took a step toward the purchase when it went public, selling about 1 million shares and raising about $5 million. A year later, the company sold an additional 3.5 million shares, raising about $30 million to fund the purchase of IDP and pay off some of IDP's debts.

Dunne said attrition in the manufacturing industry should help the company reach its sales goals. Dell Computer Corp., Round Rock, Texas, has helped knock systems integrators such as Electronic Data Systems Corp., Plano, Texas, and BTG Inc., Fairfax, Va., out of the hardware reseller business.

"We actually have seen our competition shrinking," Dunne said. "Even though Dell and Gateway 2000 are making headway, we're picking up business as integrators drop out. Unless you manufacture this equipment, you can't make any money in this business. You just get killed."

Business: Computer manufacturer
Headquarters: Sterling, Va.
Founded: 1987 as Dunn Computer Corp. by Thomas Dunne
1997 revenues: $21.7 million
Employees: 260
Web site: www.dunncomp.com

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