Devon IT may need to reboot itself again after Dell's Wyse acquisition; Challenge also could create new opportunities
Last week I had the opportunity to interview Joe Makoid, the President of Devon IT, the King of Prussia-based maker of what in the past have been called thin client computers, though are now often being referred to as alternative desktops, virtual desktops and Cloud client computing devices. The message was that business for Devon IT, a part of Dr. John Bennett's Devon International Group, was booming, and its OEM relationship with Dell was a major reason for that.
Then this past Monday morning, as I began work on my writeup, a headline popped up in my newsfeed: Dell had announced the acquisition of Wyse Technology, one of the two market share leaders, along with HP, in the field (see analysis from Redmond Channel Partner Magazine). Each has slightly above 25% of the market; HP's thin client business grew in large part from its 2007 acquisition of King of Prussia-based Neoware, although most of those operations are now based in Texas. Wyse had $375 million in revenue last year; I have seen estimates of the acquisition price ranging from $350 million to $600 million.
This is no doubt at least a temporary setback for Devon IT, as the company tells me that more than half its sales were derived through the Dell relationship. Although Devon has not commented officially on the matter, a company spokesperson assured me in a phone conversation that Devon IT is doing just fine and isn't going anywhere. No one (the company has slightly less than 100 employees) is being laid off. They still expect revenue this year to increase over last year, although possibly not by as much as previously anticipated. Dell's move was likely motivated less by dissatisfaction with Devon than by the opportunity to scale up faster through buying Wyse, and also to gain access to a much larger channel. There may still be some opportunities for Devon within the Dell product line (Dell was already using some Devon models and software along side Wyse products in its portfolio), although they simply don't know yet how that will work out. Also, they are getting calls from many other players, both large and small, inquiring about possible partnerships, as well as from investment bankers. The Wyse deal helps to validate the value of thin technology as part of an overall solution in an increasingly virtualized and Cloud-oriented world.
The value of companies like Wyse and Devon IT is not in the hardware, which is largely an outsourced commodity, but in the IP and software (both the OS within the thin device and the network management platform) that makes the whole thing work. Customers most often have problems when the front end technology doesn't work well with the back end solution. And Devon IT's software is a proven, proprietary solution on both the front and back ends. Large companies without specific expertise in this area would have a difficult time replicating this solution in house.
It has been a game of musical chairs in the thin client industry, as the companies specializing in the technology to try team up with big vendors who can drive the larger deals. Devon IT had previously tried partnering with IBM, but that relationship ended in a 2010 RICO lawsuit filed by Devon, alleging a "Ponzi Scheme", against some individual IBM execs and the Corporation. A judge later threw out the RICO charges against IBM while maintaing them against the individuals named, and IBM is still a defendant in the suit. The case is currently on the docket to go to trial in late October, pushed back from June, according to an update filed today. Devon IT's Makoid would only tell me that he considers IBM to be "a great American company", that he hopes the matter is resolved soon, and he wouldn't rule out Devon working with IBM again sometime in the future.
There are other large vendors out there that are still looking for thin technology partners, including Lenovo, and possibly Cisco Systems, whose exisiting relationship with Wyse could be impacted by the Dell acquisition.
Dell says Wyse revenue grew by 45% last year. Devon IT said its revenue had tripled over the past two years to $40 million in 2011. IDC forecasts 16.4 percent growth in thin-client unit shipments, and 12.6 percent growth in revenue. with the market growing to $3 billion plus by 2015.
Thin clients have often been deployed for what I'd call "preformatted tasks", in which the workflow is largely predefined and the end user isn't doing much customization. Certain healthcare and call center applications might be examples. Some analysts envision the use of thin devices spreading to other professional users in what might be a hybrid approach, used in tandem with a BYOD (Bring Your Own Device) smartphone or tablet. Which raises the question of whether Apple has any plans in this area. Devon IT says it practices what it preaches; company policy as set by Makoid is that every employee, except for some specialized graphics or engineering users, use thin devices. And they like them and can get everything they want done, I'm told.
Makoid, who grew up in Norristown and graduated from Villanova, has spent most of his career running tech companies in the Philadelphia area. He co-founded Bus Tech Inc, a spinout from what is now Siemens Nixdorf, in 1987, and sold it to a subsidiary of Storage Technology in 1994. He founded DataCenterDirect, a managed services company which was acquired by Safeguard Scientifics in 2001.