Spokane Journal of Business

Manufacturing contract gives PC Open a boost

Young Spokane company is making digital recorders for international concern

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A 4-year-old Spokane company that cut its teeth assembling computer servers and workstations for schools and colleges, expects now to ride a wave of growth making digital video recorders for a big international electronics manufacturer.

The company, PC Open Inc., is headed by two Gonzaga University graduates who began in 1998 putting together computers using ready-made components and selling them in volume to schools. Working from the basement of the house they shared, the two entrepreneurs, Rick Sheppard and Alan Aldous, managed to bring in $365,000 in their first full year of operation, and began building relationships with such customers as the University of Idaho and West Valley School District.

Later, they bought the U.S. rights to a digital video recording technology from a Korean company and began dabbling in the manufacture of devices that could be used in conjunction with surveillance cameras for security. They sold the digital video recorders, or DVRs, under their own brand name, Open Eye, but sales were sporadic, says Sheppard, the companys president.

Now, thanks in part to a 6-month-old contract in which PC Open is making the devices for sale under the name of a major electronics manufacturer, the Spokane venture employs 17 people and will have revenues this year of about $5 million. Last years revenues were about $2.8 million, says Sheppard, who owns the company with family members, Aldous, and some of the ventures early employees.

He says contractual agreements prohibit him from disclosing the name of that manufacturer, but explains its a well-known company and that the added business has PC Open hopping.

As a result of the contract, DVRs now account for about half of the companys overall revenues, with computer assembly making up the rest, and it expects DVRs next year to account for more than 70 percent of sales. Sheppard predicts that PC Opens overall sales next year will grow to between $7 million and $10 million, and that it soon will outgrow the 6,000-square-foot building it has occupied at 328 E. Sprague since early 1999.

Sheppard says the company has begun looking at new quarters, and expects by next spring to move to a facility with around 10,000 to 12,000 square feet of floor space. He says, however, that PC Open likely wont hire many additional employees in the near term because its current work force, which includes 10 college graduates, is sufficient to meet expected volume demands in the coming year.

Were pretty well set for people, he says. The sales increases well see next year weve been experiencing for the past six months with the people we have.

PC Open generally has about 30 DVRs either being built or tested at any given time, and keeps an inventory of the deviceswhich are about the size of a desktop computeron hand for its big customer. As orders come in, PC Open customizes the DVRs it has in inventory to meet an end-users needs, then ships the devices directly to that user in packaging provided by the major electronics manufacturer.

The devices enable a user to collect images from up to 32 video cameras and to record those images on massive storage media included in the devices. They also are capable of burning those images onto a CD-ROM for archiving, and can transmit the images over the Internet or a companys internal computer network to desktop computers where they can be viewed and managed by others.

Depending on their configuration, the devices sell retail for between $3,000 and $15,000 each, Sheppard says.

Argus Services Inc., the big Spokane Valley security company, uses PC Opens DVRs to provide a surveillance service in which the devices are linked via the Internet to Argus surveillance-and-dispatch center in the Valley.

Sheppard says DVRs have been used for nearly a decade, but didnt really catch on with big commercial users until the last three or four years. They primarily are used for security purposes, but could be used for other management tasks, such as employee training.

Aldous, the companys CFO, says PC Open landed its contract with the big electronics manufacturer because it had good technology and was small enough to be able to ship product quickly and on demand. Were very agile, he says. It got the contract, however, after having a lot of doors slammed in its face first, he adds.

Sheppard says the company expects to manufacture about 5,000 DVRs next year, including both those under its contract with that customer and the small number its sells on its own under the Open Eye brand name.

Making computers

Though DVRs appear to be the key driver to PC Opens future growth, the company continues to make computers for schools and colleges, as well as to be sold to consumers through independent retail outlets.

PC Open sells its desktop computers and servers directly to educational institutions throughout Eastern Washington and North Idaho, and uses about 20 resellers to market desktop computers to consumers. It doesnt pursue sales directly to business users, though one of its first big breaks came when it landed a big order from Spokane-based WestCoast Hospitality Corp., which continues to buy hardware from PC Open, Sheppard says.

Back when we were still at Gonzaga, we sat around and talked about how we could sell a lot of computers and minimize service requirements, he says.

The answer, says Aldous, was to look to customers that spend at least $100,000 a year on computers and have their own technology departments that can set the computers up and provide internal technical support when things go wrong. That way, customers only call PC Open for technical assistance when problems are more severe, such as the need for a new component.

Schools, he says, were a natural choice. Our main focus has been education. Schools buy a lot of systems.

PC Open now assembles and sells 2,000 to 3,000 computers a year, Sheppard says. The devices sometimes bear the PC Open name, and other times are sold under the name of one of its resellers.

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