With annual revenues of $2.5bn last year, Entex Information Services could formerly have claimed to be the largest personal computer systems integrator in the US. But having been trapped in the recent downward spiral of PC hardware prices, Entex has seen its distribution profits vanish and its revenues fall. And with high levels of interest and debt to repay, the company hit a severe liquidity crisis earlier this year.
The end result is that Entex was forced to sell its entire hardware products division to CompuCom Systems in May for just $137m in cash. In 1998, this division contributed $2.0bn to Entex’s total revenues, but it was also responsible for heavy losses. For the six months to December 1998, company-wide losses reached $49m, forcing a major restructuring that included the first compulsory lay offs in Entex’s history. The company issued severance packages to 5% of its workforce, together with numerous office ‘consolidations’. The cost of the restructuring was estimated to be $27m.
Entex had initially tried to counter its problems with a shift in its business mix towards services and outsourcing (the company claims to have 700,000 client PCs under its management.) But with 80% of revenues still coming from declining hardware sales, down by 13% in the last quarter, and with gross margins on product sales also dropping, down nearly 3 points to just 7.4% last quarter, Entex was unable to generate enough cash to service its debt, forcing it to sell off the troubled hardware division.
Entex was born in 1993 when Dort Cameron, formerly of disgraced junk bond kings Drexel Burnham Lambert, assembled a group of investors to buy out the struggling Information Systems division of the New York building maintenance firm, JWP. Cameron still retains a 74.4% equity holding, and growth in the business has largely been financed with funds from IBM Credit Corp, leading to a balance sheet which shows liabilities well in excess of assets. Following the divestiture, Entex will now focus on providing services for distributed computing, where the company is managing to make a profit.
