Pulsar Takes Steps to Boost Services Business

Pulsar Takes Steps to Boost Services Business

By Richard McCaffery
Staff Writer

Kevin Linck, vice president and general manager of Pulsar Data Systems, and Carol Kerins, director of federal sales for CyberMedia. Pulsar has teamed with CyberMedia as part of its effort to become a systems integrator.

"It's taken longer, and we've had a much more difficult time transitioning [our] people into thinking like systems integrators instead of resellers," said William Davis, Pulsar's president and chief executive officer.

Since 1995, the Lanham, Md., company has tried to improve profit margins by selling services, such as consulting and maintenance, as well as products. Two years ago, Davis was optimistic that by the end of 1998, Pulsar's revenues would come from an even mix of product sales and services. At the time, just 20 percent of Pulsar's revenues came from services.

It didn't happen. Services still comprise just 20 percent of the company's revenues.

But Pulsar has undergone a housecleaning in the last nine months, and Davis predicted that services would generate 30 percent to 40 percent of the company's business next year.

Davis is shopping for systems integration and security companies to add heft to the company's services offerings. The first acquisition, a Virginia-based data security company, should be completed by year's end, he said.

"We feel very seriously about [this] acquisition phase," said Davis, who declined to provide further details about the purchase.

Over the last three quarters, Pulsar has reduced its staff from 160 to 104. In March, the company hired Kevin Linck from Cambridge Parallel Processing Inc., Irvine, Calif., as vice president and general manager to jump start Pulsar's services division.

In the fourth quarter of last year, the company started manufacturing its own computers and computer products to improve profit margins.

In July, the company teamed with CyberMedia Inc., Santa Monica, Calif., to incorporate CyberMedia's self-healing software in Pulsar computers and to sell the software to its government customers. The software enables computers to automatically fix many day to day problems. Pulsar is also selling CyberMedia's security products.

Founded in 1983, Pulsar Data Systems started out as a leasing company. It loaned everything from cars to mainframe computers to government and commercial customers. Pulsar became a government reseller in 1986 as the world made the switch from mainframe computers to desktops.

The majority of Pulsar's government customers are civilian agencies, including the Immigration and Naturalization Service and the departments of Agriculture, Justice and Veterans Affairs. Eighty-five percent of the company's business is with the federal government.

Davis expects Pulsar to make $164 million this year, up from $151 million in 1997, but still down from 1996 when the company made $166 million. In June 1997, Pulsar left the Small Business Administration's 8(a) program, which provides small disadvantaged businesses with federal government contracting preferences.

Bob Dornan, senior vice president of Federal Sources Inc., McLean, Va., said Pulsar's government business is growing.

"They've got a nice spread, as opposed to a narrow focus, as far as agencies are concerned," Dornan said.

The company has reported $58.6 million in General Services Administration schedule sales so far this year, placing them 13th on the list of GSA suppliers, said Dornan. He said he wouldn't be surprised to see Pulsar start to get more services contracts from its hardware sales.

"A lot of hardware delivery has a component of services to it, such as delivery and training," he said. "Those kinds of entries are extremely good to have."

Pulsar is competing for several contracts in the services arena. It submitted a bid to be prime contractor on the Internal Revenue Service's Treasury Department Acquisition 3 contract, a five-year deal worth $200 million. That contract award should be made in September, he said.

Pulsar also is competing for a subcontracting spot on the Department of Transportation's Information Technology Omnibus Procurement 2 contract, worth $10 billion over seven years. Davis declined to name the prime contractor leading the team. That contract award should be made by year's end, he said.

Pulsar is counting on Linck to help land these services contracts and fine tune the services the company offers.

"We're not going to just pump hardware out the door," Linck said. "We can't survive in the business that way."

The company's deal with CyberMedia is key to making Pulsar more attractive to government customers looking to lower the cost of maintaining computer systems, Linck said. He said CyberMedia's products also make it easier for a small company like Pulsar to keep expenses down in managing its services contracts.

William Davis

"The big cost of getting out there is just killing companies," said Linck, who expects Repair Engine to Pulsar's service calls by more than one-third.

CyberMedia, which has 220 employees, has undergone a major shakeup of its own this year. In the first quarter, its chief financial officer and chief executive officer resigned in the wake of serious inventory problems. At one point late last year, the company had up to 150 days of inventory in the sales channel ? way above the industry standard of 60 to 90 days, said Bob Davis, vice president and general manager of CyberMedia's enterprise group.

Davis, no relation to Pulsar's Davis, said the company spent the first two quarters ironing out its problems and now has them under control.

For the quarter ended June 30, CyberMedia reported revenues of $5.9 million, down from $20.4 million from the period a year earlier, and a net loss of $11.9 million or 91 cents a share.

CyberMedia's Davis expects the arrangement with Pulsar to be the first of many industrywide partnerships. He said the Repair Engine product, which scans for problems before they crop up, will foster a new way of thinking in the industry.

"You shouldn't have to wait until [the system] breaks to fix your problem," he said.

On July 28, Network Associates Inc., Santa Clara, Calif., announced a tender offer to acquire CyberMedia for $9.50 a share, or about $130 million.