New CEO, government VP look to replicate Dell's success with direct-sales model

Micron Electronics Inc., which this month appointed a new chief executive officer and a new top-level official in charge of government business, has set out to fine-tune its direct-sales effort and to climb into the top tier of PC manufacturers within the next few years.

According to Harry B. Heisler, Micron's newly appointed public sector vice president and general manager, Micron recognizes that government information technology buyers are more savvy than ever before, and the company believes this level of sophistication translates into a growing willingness to buy PCs directly from manufacturers, as Dell Computer Corp. has demonstrated.

Joel J. Kocher, the new CEO and president of the Nampa, Idaho-based company, and Heisler said the company's direct-sales model gives it the best odds that it could hope for to climb into the top ranks of PC vendors.

Heisler, a veteran in the government market after having spent 10 years at Government Technology Services Inc., has seen the evolution of the government customer firsthand. "When I got in business in 1984, we had sergeants calling us to order 'Lotus one hundred twenty-three,' " Heisler said, referring to the spreadsheet software Lotus 1-2-3. "Those questions are not being asked any more."

Government buyers are a lot more experienced now, and their questions are raised not at the point of sale but on the management level by people who are on their third or fourth generation of PCs, Heisler said. Government managers, chief information officers and high-end users now are all part of the matrix that has to be "worked," he added.

"We have to show them that our direct model allows them to get what we consider superior technology quickly and at a low cost with the least amount of redundancy," Heisler said. "We are not selling off 30 days' worth of stock but taking an order and building [the PC] today for delivery tomorrow."

Micron teams with Unisys Corp. for on-site service support for its federal customers. For example, the blanket purchase agreement that Micron won this month from the Air Force Standard Systems Group includes a three-year on-site parts and services pact to be delivered by Unisys.

About 20 percent of Micron's overall business is done in the federal market despite the company never having had a strong focus on government, Heisler said.

In the government segment, Micron, along with other direct-model companies, has benefited from explosive growth in General Services Administration schedule sales. According to GSA, Dell led the pack with $284 million in sales for the fiscal year through April, followed by Gateway 2000 Inc., GTSI and IBM Corp. Micron ranked fifth with $109 million, nearly matching in seven months its total GSA revenues for fiscal 1997: $118.6 million.

A battle for second place might be shaping up between Gateway and Micron, said Mark Amtower, president of Amtower & Co., Ashton, Md., and the winner will be the company that can best duplicate Dell's high rate of repeat customers.

"The difference between Dell and Micron is Dell has a very sophisticated [Washington] D.C. presence," Amtower said. "The brand loyalty certainly may be there [for Micron], but do they have the penetration and name recognition that Dell and Gateway have? I would say no," Amtower said.

Competition Heats Up

However, Micron's Kocher, speaking earlier this month at the PC Expo conference in New York City, seemed to be well-acquainted with the challenge.

"We are in a hotly competitive business and a business that most people believe is consolidating into...four or five players," said Kocher, a former marketing and sales executive at Dell and one of the architects of Dell's direct model. "If we are going to make it into the top tier before the business does consolidate, we have to execute almost flawlessly."

Micron was ranked 10th in overall shipments of laptops, desktops, workstations and servers in the United States in the first quarter of 1998 with 2 percent of the market, according to International Data Corp.

Kocher, who was president and chief operating officer of the Macintosh clone maker Power Computing Corp. before Apple Computer Inc. bought its core assets last year, said if Micron managed to become a $2 billion company without effectively executing the direct model, then its chances of growing while focusing on the advantages of selling directly are excellent.

When he arrived at Micron in January as president and CEO, Kocher's first move was to tidy up the company's sales inventory, reducing it from 39 days to 10 days, second only to Dell with seven days of inventory, he said. Micron also cut prices in May to bring them more in line with Dell and Gateway.

Kocher said Micron is now "out of the ditch" following recent quarters of slipping sales. Last month the company reported a fiscal third-quarter profit of $5.9 million on revenue of $340 million, which was down from $19.7 million in earnings on $511 million in sales in the same quarter of 1997.

Roger Kay, an analyst at IDC, Framingham, Mass., said Micron is not making any "pie in the sky" claims as it refocus itself except for the goal of becoming one of the top four or five PC makers.

"Micron is an interesting company, and their momentum is generally up, and that's unusual for any company that's not in the very top tier," Kay said. "They have the potential to pass some of the lower-ranking top 10 companies, but I don't know whether they will make it into the top five."