Fed PC market shrank in fiscal '95

The turbulent federal PC market actually shrank in fiscal 1995 because the Air Force Desktop IV contract exceeded its ceiling long before the Desktop V contract was ready. But Desktop IV contractor Zenith Data Systems still topped federal PC shipments last year.

These were among the findings of a new report on the federal PC market from IDC Government Market Services, Falls Church, Va. The federal government bought about 430,000 new PCs during fiscal 1995, which was about 12 percent less than the previous year, according to the report. This decline was due primarily to Desktop IV's 1995 hiatus, said Jan Morgan, a research analyst for IDC. The contract reached its quota for military buyers in late April and was not reopened for ordering until August [FCW, Aug. 14, 1995].

"The Air Force never expected [Desktop IV] to be a two-year contract," Morgan said. "It was supposed to be three years plus options." Better PC price/performance and pent-up demand from the Desktop III contract fueled demand that expended Desktop IV prematurely, she said.

Zenith led government sales because of its share of the Desktop IV contract and the company's growing success on the General Services Administration schedule, Morgan said. The company particularly benefited from a large number of PCs that were ordered in fiscal 1994 but were delivered in fiscal 1995 and therefore count toward the 1995 tally, she said.

Electronic Data Systems Corp. sold enough Micronics Computer Inc. PCs on its Army PC-1 and Small Multiuser Computer contracts to enable Micronics to grab the second spot, up from fourth place a year ago (see chart). "Micronics being No. 2 was kind of surprising," Morgan said. "They are new; they've got a good system integrator connection, and they've provided a good product."

Dell Computer Corp. took third position, despite lacking a major Defense Department indefinite-delivery, indefinite-quantity (IDIQ) contract. IBM Corp., meanwhile, rode its Desktop IV relationship with Government Technology Services Inc. to fourth place. Gateway 2000 Inc. debuted in the top five in its first full year on the GSA schedule. IDC also ranked the top portable PC providers. International Data Products Corp., an 8(a) notebook specialist, topped that list, thanks to the company's position on Army Portable-1, Justice Notebook and Lapheld II. Toshiba held second place on the list without any major IDIQ contracts, followed by IBM. Compaq Computer Corp. and Panasonic ended up fourth and fifth. Both companies had notebooks carried on GTSI's Army Portable-1.

Notebook sales climbed to 105,000 units - 17 percent over those in fiscal 1994. Many of those units shipped with docking stations or port replicators and serve as replacements for older desktop machines for many mobile federal workers, Morgan said.

"We are very excited about the [IDC report] results," said George Fuster, president of IDP. "It shows that what we are doing with our quality program is working," he said.

IDP has certified its manufacturing plant ISO9001-compliant for the most stringent quality procedures.

IDP's strategy has been to combine improved quality with a low price and industry-standard technology that is one step ahead of its contract competitors to appeal to value-conscious federal buyers, Fuster said. Being the manufacturer and the reseller gives IDP better flexibility to deliver the most popular technology at the best price, he said.

Dell has used a similar strategy in the desktop market, according to Theresa Garza, Dell's vice president of government sales. Because Dell builds PCs to order, it does not have inventories of older, less popular configurations to sell before it offers newer technology, she said. "Our model lets us offer the lowest cost to the customer," Garza said. "There is a significant buying entity that wants the latest and the greatest at a really hot price."

Dell employed this strategy and burgeoning interest in the GSA schedule to boost its federal sales by nearly 45 percent over the previous year, she said. However, the company's own market research supports IDC's finding that the total federal PC market contracted last year. IDC and Dell agree that the federal PC market will grow in 1996.

Faster Pace

IDC spotted a trend last year that may eventually reverse the image of federal agencies as bastions of outdated technology: The government is replacing its PCs more quickly than before. "Desktop PCs used to be installed once every five years, on average," Morgan said. "Now it is every four years. Dell sees the same trend, with the average life cycle at some agencies as short as three years now," Garza said.

But the federal government still lags the commercial market, which, until recently, had typically replaced PCs every three years, she said. Today, commercial customers may replace PCs as frequently as every 18 months, and every two years is typical because of improved price/performance in new PCs.

More and more of those replacement units are notebook computers, Morgan said.

"Some of the desktops being replaced are being replaced by notebooks," she said. IDC found the installed base of desktop PCs shrank last year and that as many as 60 percent of notebooks were selling with docking stations to make them more suitable for desktop use.

At the Immigration and Naturalization Service, for example, all the border patrol officers and lawyers use notebooks and docking stations as their only computers, Fuster said. INS and some other agencies buy docking stations with all their notebooks.

A more typical proportion, however, is about 25 percent of notebooks including a docking station or port replicator. The main appeal of docking stations is the PCI expansion slots they include, said Jan O'HARA, area sales manager for government sales for Toshiba.

Docking-Station Option

For most peripherals, the 16-bit PC Card sockets built into the notebook and many port replicators will handle popular add-ons such as modems and network adapters. Customers who specify docking stations instead of port replicators usually want to install a high-speed 32-bit PCI network card, she said.

Many customers ask for a docking station without realizing that a port replicator would serve the same purpose, O'HARA said. "They don't even know what PCI cards are," she said. "A lot of people think that if they want a desktop replacement, it has to be big."

About 15 percent of Toshiba's orders include a docking station or port replicator and the less expensive port replicators, are more popular by a nearly 10-to-1 ratio. Another problem for customers who want to replace desktop PCs with notebooks is price, Garza said. "Prices haven't compressed to the point that you can buy a notebook as a desktop replacement for the same price as a similarly configured desktop," she said. That kind of customer would spend about a $1,000 premium over the desktop price."