January 23, 2000|By Mark Ribbing | Mark Ribbing,SUN STAFF
The early skepticism toward mobile phones has given way, and while Tessco's income and stock price have suffered from a dispute with a key supplier, sales have moved upward as wireless usage has taken off, and continued growth is likely.
According to Herschel Shosteck, a Wheaton-based analyst, wireless telephone sales are increasing by as much as 30 percent a year worldwide. Mobile phones have become cheaper to use, and the annoying disconnections that hampered service in the past are slowly being ironed out as networks improve.
In addition, wireless technology is gradually being used for more than talking; hand-held phones and other devices are the hot next-generation tools for communications of all kinds, from stock-ticker perusal to Web surfing.
All of which would seem to augur well for Tessco, but the company's success is by no means guaranteed. "There's going to be more demand for their products. It's just a given," said Wyeth. "The question is, what kind of market share can they capture?"
In other words, how much success can a moderate-size Maryland company like Tessco have acting as a go-between in an increasingly lucrative and crowded industry?
It's a tricky question, because Tessco sits smack along so many of the fault lines that are roiling across the telecommunications business in particular and the U.S. economy in general.
Take that San Andreas of economic change, the mighty Internet. At one level, the Internet is tailor-made for Tessco. Rather than having to send out its voluminous equipment catalog to prospective customers, Tessco can simply refer them to the company Web site, where browsing and buying can take place with a few clicks.
"I see the Internet being an advantage to them. It's doing what they're doing; it's only a different medium," said Theodore J. Moreau, an analyst with Robert W. Baird & Co. Inc. in Milwaukee.
At the same time, the Internet is a threat. Throughout the economy, from books to computers to plane tickets, the ancient role of the middleman is being wiped out or reduced as the makers and buyers of products get together directly on the Web.
So why should a manufacturer of cell phone batteries bother paying Tessco -- or anyone else -- to distribute its goods to the people who want to buy them? Why not just sell directly, skipping the distributor entirely?
Tessco knows that, in some cases, it has no answer to this question. For certain kinds of basic, high-volume goods -- such as cabling -- the Internet and other factors have brought prices low enough that it's not worth it for Tessco to base its business on them anymore.
Barnhill, an avid student of management gurus like Peter Drucker and Intel Chairman Andy Grove, said this harsh new reality is so pervasive and important that he has turned away certain orders in order to avoid being lured into product lines that would sap Tessco's earnings in the long run.
"It comes back to discipline. You have to be prepared to walk away from some business," he said.
So Tessco has embraced a new approach, more Nordstrom than Target. Rather than trying to woo customers with the lowest costs on a particular piece of equipment, it's holding itself out as a know-how company that brings together all the gear a customer needs for a given project, such as a cell phone tower.
It's not yet clear if this strategy will work, but analysts say Tessco does have one important thing going for it: Manufacturers are trying to strip expenses any way they can, and are increasingly eager to let someone else handle the cumbersome duties of inventory and distribution. Tessco, and other companies similar to it around the country, are emerging as that someone.
"Shipping, inventory, customer service: those are things Tessco's been doing for some time," said analyst Herschel Shosteck. "Manufacturers are getting out of that business. They're outsourcing their distribution [systems]."
Tessco has learned the hard way that it cannot allow itself to become too reliant on any one manufacturer. A few years ago, cables made by Andrew Corp. accounted for about 30 percent of Tessco's sales. Andrew tried to take advantage of this dependency by asking Tessco not to carry another company's cables. Tessco, seeking to preserve the variety of its product line, refused, and Andrew took its business elsewhere. The loss of Andrew's cables pulled down Tessco's stock and left the company with an income hole that took a long time to fill. Litigation between the two companies was recently settled.
Barnhill said his greatest worry lies elsewhere, in the widely chronicled difficulty that employers have finding good workers. "The biggest thing that keeps me awake at night is the people and talent," he said.
In order to lure and keep workers, Tessco has offered such options as telecommuting and four-day weeks, though Barnhill worries that with such measures, "you lose a lot of the team spirit and the culture."
