Raytheon looks to sell IT pacts
- By Bob Brewin
- Apr 26, 1998
The Air Force Desktop V contract— the latest in a decade-old series of contracts that helped propel the Defense Department into the PC age— has been put on the block by its prime contractor, which is shopping it to a collection of resellers and manufacturers.
Raytheon Corp., which acquired the federal PC and workstation reseller business of Hughes Data Systems as part of a multibillion-dollar acquisition of Hughes Aircraft Co. earlier this year, has little interest in low-margin, commodity-type PC contracts such as Desktop V, according to industry sources. The company does not even want to keep the higher-margin Air Force Workstations contract, also managed by Hughes Data, which is now called Raytheon Data Systems.
"Raytheon wants to sell big-ticket Defense electronic systems with hefty margins, and [it] has no interest in the nickel-and-dime PC and workstation business,'' said one industry source who is familiar with Raytheon's efforts over the past two months to shed these business lines.
Although a Raytheon spokesman would neither confirm nor deny that the company has put its computer resale business on the market, industry sources confirmed that a number of companies have talked with Raytheon about acquiring Desktop V, Air Force Workstations and other federal vehicles, including contracts with the Patent and Trademark Office and the National Institutes of Health's Electronic Computer Store II.
Micron Electronics Inc., a major PC supplier on Desktop V, has emerged as the most likely suitor for Desktop V, followed closely by Federal Data Corp., which has a reseller agreement with Compaq Computer Corp., which is Raytheon Data's other PC supplier. Intergraph Corp., industry sources told FCW, has all but locked into an agreement to acquire the Air Force Workstations contract. Other long-shot bidders for Desktop V include Government Technology Services Inc. and Vanstar Government Systems, the source said.
Raytheon's efforts to spin off its commodity computer contracts have been complicated by the liabilities each carries vs. low industry estimates of the contracts' market values.
Patrick Gallagher, former sales vice president of the now-defunct Zenith Data Systems Inc., which also held a Desktop V contract until the Air Force Standard Systems Group canceled it, said the Raytheon Desktop V contract "only has one more year to run, and a good sales organization could do $60 [million] [to] $90 million in business.''
But, Gallagher added, the real question about the Raytheon Desktop V contract, which has only one year of hardware sales left, is: "What will go to the bottom line? This is not a margin-rich contract.''
George Fuster, president of International Data Products Corp., which received the go-ahead last year as the Desktop V small-business contractor, said the liabilities of the Raytheon Desktop V contract— including requirements for worldwide software and maintenance as well as free software upgrades for the next three years— outweigh any revenues that could be gained in one sales year.
Because of the liabilities, "Raytheon should pay someone who wanted to take it over," Fuster said. "I would not take it over unless they paid me.''
The liability issue also has clouded the sale of Air Force Workstations to Intergraph, FCW has learned, with Intergraph insisting that Raytheon legally accept responsibility for liabilities such as warranties as part of any deal. The possibility exists that Raytheon may ultimately decide to hold onto the contracts in an attempt to generate enough revenues to cover those liabilities.
Raytheon has felt pressure from the Air Force to internally revitalize the computer contracts or find buyers with the experience and the will to effectively market and support the two vehicles.
The Air Force "buys a lot of heavy Raytheon iron, and the company knows it has to do the right thing for such an important customer,'' one industry source said. "Right now, I think Raytheon is trying to figure out the best way to lose the least amount of money on DT V and [Air Force Workstations].