Looking Past the Basic Product : Artecon Basks in Sun’s Bright Computer Aftermarket
In early September, James Lambert sat in his office at Artecon in Carlsbad waiting for a telephone call from Washington. He had heard that his company was in the lead for a $9-million contract to install 55 computers at Wright Paterson Air Force Base in Dayton, Ohio. It was decision day.
Lambert knew that the contract would be the biggest in the firm’s four-year history and could lead to the sale of 500 more computers in the future.
The call never came.
“It would have been my biggest disappointment,” he recalled , “except that, while I was waiting, I got a call from the Department of Labor.” To his surprise, Lambert learned that Artecon had won a five-year, $8-million contract to install work stations in U. S. unemployment offices.
‘It Put Us on the Map’
“It put us on the map,” said Lambert, Artecon’s president. “We won against bigger companies.”
Artecon, which competes in a world defined by bigger companies, is a systems integrator for Sun Microsystems and is authorized to sell to the government and defense markets. It buys computer work stations from Sun and combines them with equipment and software to meet the needs of its customers, which include General Dynamics and Science Applications International in San Diego.
In the last six months, Artecon has embarked on a second course: to become a major supplier of the add-on equipment and accessories to Sun’s basic work stations. If successful, Artecon could grow exponentially in a very short period.
Sun’s work stations straddle the line between microcomputers and minicomputers, in terms of power. Since it was founded five years ago, Sun has been one of the fastest growing computer companies in the world. “Sun is a hotbox,” said Alan Alper, deputy managing editor of Computer Systems News, a trade journal.
In its fiscal year ending June 30, Sun grossed $1.05 billion, up from $538 million the year before. In the quarter ending Sept. 30, Sun grossed $388 million, with net profits of $20.6 million. At that rate, it could generate more than $1.5 billion in sales this fiscal year.
Market for Work Stations Growing
According to CAP International, a market research group, the work station market could grow 35% to 45% this year.
Although Artecon’s performance has been less spectacular than Sun’s, its growth has been robust for a company its size. In its first selling year, Artecon generated $1.9 million in revenues. Last year, sales reached $4.9 million. This year sales are running at a rate of more than $10 million.
According to Ajit Kapoor, senior vice president of electronic imagining systems at CAP International, systems integrators commonly generate $5 million to $50 million in sales. Sun has several dozen systems integrators across the country.
Lambert founded Artecon four years ago, shortly after Sun was established. At the time, he was operations vice president at a division of GE/Calma, in Sorrento Valley, which developed software for computer-aided design applications. Before joining Calma, Lambert, who has a master’s degree in structural engineering, had written a software program that allowed engineers to model and preview structural stresses on projects such as the B-1 bomber and submarines.
Under Lambert’s supervision, his Calma division grew from $10 million in sales to $250 million, and he was managing 180 programmers.
“At Calma, I could see what was happening,” Lambert said.
What he thought he saw was a new opportunity to integrate work stations with needed specifications for customers in business and the government. He believed that the Unix operating system would emerge as the standard system for work stations. If it did, two results seemed inevitable: prices for hardware would come down and the market would grow dramatically.
The operating system is the basic set of instructions for a computer. As a result, different manufacturers can build computers that basically work the same, and companies can build peripherals and software that can work on all the computers that share that operating system.
Lambert opted to align himself with Sun because of its strong commitment to Unix and to an open system, which gave Artecon more flexibility.
After he left GE/Calma, Lambert began Artecon and spent 18 months developing products for the Sun systems. “Like many new companies, they spun their wheels a little in the beginning,” said Dan Vahalla, a Sun sales representative in San Diego.
Fortunately, Lambert did not have to worry about financing. His father-in-law, who heads a $130-million privately held conglomerate in the Midwest, was willing to underwrite the operation.
Artecon, in its 24,000-square-foot Carlsbad plant, designs, engineers and builds equipment to customize Sun systems. One time, a customer wanted a tape storage unit with four removable data canisters instead of the two the Sun system offered. Artecon built it. In another instance, a government contractor wanted to use several Sun computers to analyze data on field maneuvers. Not only did the machines have to be altered to withstand a harsh environment, but a long-distance cable was required to attach monitors and keyboards to computers. Finally, when a customer wanted to use Sun hardware in a training application, Artecon invented a computer stand that allowed monitors to slide easily across a table top. The company has applied for a patent on that.
In April, Lambert surveyed the products Artecon had developed for its customers and decided to try to sell them to Sun Microsystems users, which could number as many as 500,000, according to Michele Sandoval, editor of the Sun Observer, a journal exclusively devoted to reporting on Sun. To pursue that opportunity, Artecon created the Workstation Products division. Its aim is to market the tape drives, pedestals, cables, other peripherals and accessories Artecon has designed for its systems integration customers to other Sun users.
According to Alper of Computer Systems News, only a few companies are actively pursuing the Sun aftermarket and Sun itself only manufactures a limited number of peripherals.
“Nobody is doing this at the same level as we are,” claimed Douglas Cooper, Artecon’s director of marketing. ‘Our aim is to be the premier vendor of products for the Sun aftermarket.”
Outside observers believe the approach could work. “Since the growth in the market is tremendous, the peripheral market will be large,” said CAP’s Kapoor. “There is no reason why they could not be as large as AST.” Irvine-based AST Research is a $200-million company which initially sold add-on boards for the IBM PC market.
In just six months, the Workstation Products division has grown to contribute about 40% of Artecon’s revenue. And that figure should grow steadily. “The aftermarket could define the company,” Lambert said. “There is no reason why eventually we could not be a $50-million or $100-million company.”
As personal computers such as the IBM 386 family and the Macintosh II are linked to work station networks, and as companies release a new generation of machines that compete directly with Sun models--the first should appear in the first quarter of next year--the demand for third-party aftermarket products should grow as well. To meet that potential, in addition to marketing its own equipment, Artecon hopes to become the exclusive distributor for products developed by other companies for the Sun market.
Lambert sees a synergistic relationship between the aftermarket division and the system integration business. For example, the Loma Linda University Medical Center bought two Sun systems from Artecon for its state-of-the-art proton therapy machine to treat cancer. Since then, Loma Linda has opted to buy directly from Sun. But it still purchases the special cables it needs from Artecon.
Although the aftermarket may eventually produce big revenue, systems integration will keep Artecon close to the customer. With the new government contract, Lambert said, “The unemployment office told us that they are going to have anybody who does not receive their unemployment check call us directly.”
