Smith Corona Tries Foray Into Government Market

Smith Corona Tries Foray Into Government Market

By Richard McCaffery
Staff Writer

Smith Corona, the 112-year-old typewriter company trying to reinvent itself with a new line of personal computers, is counting on its exclusive partnership with Vanstar Corp. to enter the tough government market.

"We had to find someone we were comfortable with, someone we could establish a long term relationship with. That's the key," said Peter Parts, chairman of Smith Corona's board of directors. Parts became president and chief executive officer July 20.

Teaming with Cortland, N.Y.-based Smith Corona "gives us more arrows in our quiver," said Tricia Reneau, Vanstar Government Systems' director of marketing. The Fairfax, Va.-based reseller and systems integrator already sells PCs built by IBM Corp., Armonk, N.Y., and Compaq Computer Corp., Houston.

For the quarter that ended April 30, Vanstar reported revenue of $713 million, a 30 percent increase from a year ago. But the company announced July 15 that its first quarter 1999 earnings will come in below analysts' expectations. Vanstar expects flat revenues of $680 million to $700 million for the quarter ending July 31 because of price competition among manufacturers and lower component prices.

Teaming with Smith Corona gives Vanstar a low-cost PC with a strong brand name to compete against giants such as Dell Computer Corp., Round Rock, Texas, Gateway, North Sioux City, S.D., and Micron Electronics Inc., Nampa, Idaho.

Smith Corona, which emerged from bankruptcy 20 months ago, unveiled its new products and strategy at the E-Gov 98 conference in Washington earlier this month. The company plans to sell its line of PCs and laptops only to the federal government, using a build-to-order model similar to Dell's.

To keep costs down, Smith Corona will outsource its PC manufacturing operations. The computers will be built at a facility outside Los Angeles. Company officials declined to disclose the manufacturer's name, but said Smith Corona is overseeing the design and production processes and is taking responsibility for operations.

To differentiate itself from competitors, the company is offering a tier of services along with its computers. Government customers will receive a 60-day, money-back guarantee, a promise to fix within 24 hours any computer that fails, and coupons for a free day of computer training at any CompUSA store.

W. Michael Driscoll, Smith Corona's former president and chief executive officer, resigned July 20 in preparation for retirement next year. He is remaining with the company as a consultant.

In an interview before his resignation, Driscoll declined to disclose revenue projections for the new line of PCs. He did say he expects the products to account for at least 15 percent of Smith Corona's revenues by 2001.

"I think we have tremendous brand strength and a legacy of quality," Driscoll said.

It was the PC revolution that sent Smith Corona's fortunes plummeting. Its revenues dropped from $500 million in fiscal 1989 to $77.3 million for fiscal 1997. The company reported net losses of $858,000 last year, including $5.9 million in restructuring charges related to its bankruptcy.

The company has not had a profitable year since 1994, and sales of typewriters and word processors continue to erode, Driscoll said.

But Smith Corona has made strides since emerging from bankruptcy in February 1997. It introduced a line of cordless phones, fax machines, digital organizers and telephone headsets, banking on its name in the small and home office market. It plans to expand those product offerings soon.

For the quarter ending March 31, the company trimmed its losses 10 percent to $2.9 million on $15.1 million in sales.

"The company is redefining itself," said Driscoll, who has worked at Smith Corona for 17 years, mostly as a consultant.

Analysts agreed the Smith Corona brand name is a strong asset but were mixed about its chances of breaking into the government PC market this late in the game.

Ashish Kishore, assistant vice president at Credit Research & Trading LLC, rated the company a buy when it emerged from bankruptcy with $22 million in cash. Credit Research is a Greenwich, Conn., brokerage firm specializing in companies that are emerging, in bankruptcy or are restructuring.

"They were trading below book value," said Kishore. "We wanted to see if they had a business story to go along with their financial assets."

Kishore said the company only had to capture a small percent of the electronic products market to turn a profit. "Their name is associated with reliable products and quality," he said. "I felt the company had enough liquidity to execute its plan."

But Kishore is doubtful Smith Corona can get a foothold in the PC business. "I think moving into the federal market is a stretch for the company. I don't think they have the resources ... I mean, even Unisys had to back out of the federal [PC] market."

The federal PC market is dominated by 10 companies, giants like Dell and Compaq, said Payton Smith, manager for strategic studies at Federal Sources Inc., McLean, Va. Below the tier one companies are about 20 midsize firms, such as SMAC Data Systems, Gaithersburg, Md., and Dunn/IDP Computer Corp., Dulles, Va. There are also hundreds of mom and pop computer vendors, Smith said.

It's a crowded field, but Smith said Smith Corona has a shot, especially by teaming with Vanstar.

"There's always room for another good product," he said. "As the federal government becomes more competitive, it becomes easier to wiggle your way into the market" because buyers want bargains.

Company officials said it wasn't a stretch to eye the PC market because Smith Corona has experience in computer manufacturing.

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