Westcon Finds Success With Limited Product Line By Richard McCaffery
Westcon Inc. executives are betting the strategy of limiting its product line to networking equipment will keep a steady growth rate of 20 percent annually through 2000.
"We're not in the business of distributing a large variety of products," Roman Michalowski, Westcon's president and chief executive officer, told Washington Technology. "We provide a limited number of products with a high degree of service attached to them."
This approach of supplying such equipment to federal and commercial resellers has worked so far, even in a market that's driven Westcon's rivals to grow by expanding their product lines. The Eastchester, N.Y., company sells about 3,000 computer networking products and services from 13 vendors.
In contrast, Tech Data Corp. of Clearwater, Fla., sells more than 45,000 products from over 900 vendors. Networking equipment is often described as the plumbing of the Internet. Products like hubs, switches and routers transmit information such as e-mail messages throughout networks. Westcon's major vendors include Bay Networks Inc., Santa Clara, Calif., and PictureTel Corp., Andover, Mass. Its reseller customers include Vanstar Corp., Pleasanton, Calif., and Electronic Data Systems Corp., Plano, Texas.
Michalowski expects revenue to hit $450 million this year ? up 73 percent since 1996 ? and $1 billion in 2001. Government sales are 20 percent to 25 percent of the mix and keeping pace with commercial sales.
"A lot of money is being spent by the federal government," Michalowski said. "The networking technology is well accepted. The fact that there's a market there is a good enough reason for us to be in it."
Despite Westcon's steady success, the company has chosen to sacrifice its independence to ensure growth. On June 18, the company agreed to be acquired by Datatec Ltd., a Johannesburg, South Africa, distribution, software and Internet company. The $160 million deal is expected to give Westcon the burst of cash it needs to keep from falling behind in the fast-growing networking market, said Michalowski, who will remain president, director and chief executive officer.
"We've been growing organically from day one," said Michalowski, who founded the company in 1985. "Last year we realized the networking business was growing so fast that by remaining in the same position we were going to leave opportunities uncovered."
Westcon, which will operate as a subsidiary of Datatec, plans to upgrade its facilities and expand globally following the deal's completion this month. The company has operations in Canada, the United States, Australia, Europe, Africa and Hong Kong.
Datatec is one of South Africa's fastest growing technology companies. The company, which has 2,000 employees, has been traded on the Johannesburg Stock Exchange since 1994 and has a market value of $1.4 billion. Westcon has 500 employees.
The combined distribution facilities will use the Westcon name to market computer products, Michalowski said. Westcon officials expect the deal to boost federal sales as well. "With the infusion of capital we'll be investing a lot in infrastructure that should help us lower costs and deliver better products and better services to resellers," said Stuart Schwartzreich, Westcon's federal sales manager.
Westcon has a stable of about 500 government resellers, including the Presidio Corp., Lanham, Md., Schwartzreich said.
Choosy about its products, Westcon is choosy about its partners as well. The firm has an exclusive arrangement with Bay Networks Inc., maker of networking gear that's being acquired by Northern Telecom Ltd. (Nortel), Brampton, Ontario.
Westcon sells 1,800 Bay products. "It's our most extensive product line," Schwartzreich said. Bay is careful about its partnerships. The company has only six distributors in the United States, including Westcon, Tech Data, and Ingram Micro of Santa Ana, Calif., according to Jerry Skurla, Bay's director of strategic partner development. So how does Westcon compete with Tech Data and Ingram Micro when Bay, its primary partner, deals with its rivals? "A good amount of it is their focus," Skurla said. Westcon has made itself expert in training resellers and staying on top of product updates, he said. "There is absolutely a role for a focused networking specialist in the networking world."
Kristi Thiese, a research analyst at Raymond James & Associates, St. Petersburg Fla., said networking equipment is increasingly mass-produced, which makes it easier for big companies like Tech Data to sell.
But there is still a lot of gear that requires in-depth knowledge. "It's really suitable for niche players," Thiese said.