CMS Enhancements to Sell Its Own Computer Line : Sales: The ailing Irvine data storage firm will broaden its business in what analysts describe as a ‘radical’ move.
IRVINE — CMS Enhancements Inc., an ailing manufacturer and distributor of computer storage products, said Friday that it is broadening its business to include custom distribution of its own line of computers.
The move, described as “radical” by several industry analysts, represents the company’s attempt to revive sales while its core data storage business faces fierce competition, said Jim Farooquee, president and chief executive.
“Almost everybody questions my sanity by coming out with computers so late,” said Farooquee, who has sought to enter the computer business since 1986. “But our approach is different, unique and very much needed.”
Farooquee’s plan is to cut costs for storefront dealers--known as value-added resellers--by combining low-priced computers and fast service. The idea is to help dealers compete better against mass merchandisers and large, warehouse-type retailers known as computer super-stores during the recession.
CMS will sell its own line of computers, ranging from small notebook computers to engineering workstations, at volume discounts. The computers, including a $995 model powered by Intel Corp.’s 386SX microprocessor, will be manufactured for CMS by TriGem Corp., South Korea’s largest computer maker. TriGem began selling its computers in the United Sates in January in a partnership with CMS.
CMS will also customize the TriGem computers to suit customers’ specific requests--mixing and matching disk drives, monitors and other components. “We have low-cost manufacturing with TriGem and low-cost distribution with volume sales, so I think we should do well,” Farooquee said in an interview.
As a so-called “master integrator,” CMS will also offer technical service to the resellers, removing some of the burden for testing and repair.
Farooquee says this service can help small store owners reduce their inventory costs by 5% to 15%, a meaningful amount to retailers trying to compete against computer super-stores and mass merchandisers, such as Sears, Roebuck & Co.
The Irvine firm’s new strategy will throw it into competition with computer manufacturers and wholesale distributors such as Ingram Micro in Santa Ana, which traditionally do not provide custom computer systems and repair services that CMS plans to offer.
“This hasn’t been done before because the industry is evolving,” Farooquee said. “Today’s technology is so complex and the emergence of networks is so sophisticated that most business people need someone to configure a personal computer for them.”
To succeed, CMS will have to sign up many of its 3,500 existing dealers quickly so it can generate low-margin profits on high-volume sales, said William Higgs, vice president of microsystems research for Infocorp, a San Jose market research firm.
Tom Freeman, a Santa Ana computer dealer, said stores that sell more than one brand of PCs probably wouldn’t benefit from CMS’ new plan because they would still need technicians to service their other computer brands.
“I think they could have some appeal for the smaller resellers,” said Freeman, president of Advanced Computer Products.
But Howard Lenoble, vice president at The Computer Store in Santa Monica, said he likes the CMS plan because he wouldn’t need to hire more technicians if he adds the CMS computer line to his store’s offerings.
CMS is already approaching resellers and will launch its complete line of computers in May, Farooquee said. He said the company has no plans to increase its 430-employee work force.
The cost of implementing the new strategy could reduce earnings for the fourth quarter ending June 30, Farooquee said. But he said the plan should return CMS to profitability in fiscal 1992.
CMS generated net income of $26,000 on sales of $66 million for the six months ended Dec. 31. That was down from net income of $1.7 million on sales of $107.8 million for the same period a year earlier.
Analysts said CMS may have identified a piece of the market that is now served only by a combination of manufacturers, big computer distributors, value-added resellers and storefront dealers.
“I think it’s exciting,” said Doug Kass, an analyst at Dataquest Inc., a market research firm in San Jose. “They have come up with a marketing plan to sell preconfigured computers to dealers at a low price. That is a brand new idea.
“If they can convince resellers that they can improve their margins and take away financial risk, they could be wildly successful,” Kass added. “Resellers are cautious about taking on new computers, but if they can get at least 800 to 1,500 resellers, that would be enough.”
Farooquee started CMS in August, 1983, with just $12,000 and built the company to $188 million in sales in the year ending June 30, 1990, by selling and distributing hard disk drives and other add-on storage equipment.
CMS will still sell hard disk drives, but the shift is a sign that the company could no longer sustain its growth in the increasingly competitive disk-drive business, analysts and competitors said.
Alex Razm’joo, president of competitor Procom Technology in Irvine, said CMS failed to adjust to a rapidly changing storage market in the past two years.
Razm’joo said CMS focused on single-unit sales of PC components to individual customers instead of selling storage systems for networks of computers to large companies.
Procom, following the opposite strategy, saw its sales climb from $5 million in 1988 to $36 million in 1990, Razm’joo said. He said CMS’ expansion into selling computers is tantamount to an admission of failure in the data storage business.
Farooquee said CMS is not retreating from the computer storage business. Rather, he said, the company is only pulling out of the marginally profitable market for low-capacity disk drives.
“We’ve been looking for ways to reposition in a changing market,” he said. “I feel very confident this is the right approach and the right time.”
