Software Spectrum Sees Bright Future In Spokane Corporate Newcomer Happy Here, Embarks On Big Expansion

Even if Egghead Software gets bought out and its corporate headquarters moved from Spokane, the local economy will be better off because of its journey here.

And the principal reason is Software Spectrum Inc., a Dallas-based company that announced last week it will hire another 70 people in the next six months and double its Spokane employment to 400 or 500 people within a couple of years.

Software Spectrum bought Egghead’s Corporate, Government and Education (CGE) Division earlier this year for $45 million.

That acquisition, along with a similarlypriced purchase of an Australian company a few weeks later, made Software Spectrum the world’s largest seller of computer software and services to business and industry.

When Egghead officials announced the deal, which cut Egghead and its Spokane employment in half, they said the sales agreement required Software Spectrum to operate here for three years.

Judy O. Sims, Software Spectrum’s chief executive officer, said the agreement included no such commitment. She said the company would stay in Spokane because it wanted to, not because it had to.

Like Egghead, Software Spectrum started out as a tiny software storefront operation in 1983. Richard and Judy Sims and their neighbors, Frank and Janet Tendle, were all accountants who yearned to go into business for themselves. Someone told them software was going to be hot, so despite the lack of any computer industry background, they opened their store.

Where Egghead’s initial retail efforts produced success, the Sims and Tendles failed miserably. They decided to shift from retailing to direct sales to some of their old corporate accounting customers. The company’s fortunes have soared ever since.

Despite their similar roots, the differences between Software Spectrum and Egghead are stark. In fiscal 1996, Egghead lost $10.7 million, or 62 cents per share, on sales of almost $404 million. (A big chunk of those sales were produced by the CGE division that Software Spectrum now owns.)

In its fiscal 1996 - before its two big acquisitions - Software Spectrum earned $7.4 million, or $1.73 cents per share, on sales of $398.5 million.

Software Spectrum’s stock price is pushing $30 per share, while Egghead’s is languishing at about $6.

Egghead’s leadership may be able to resolve the company’s problems, produce profits with its new retailing format this holiday season, and make a long and valuable contribution to the Spokane economy.

But right now, Software Spectrum is clearly the healthier of the two companies, and has a more promising future.

“Software Spectrum has benefitted from a consistent management team,” says long-time Egghead observer Thomas Carley of Jensen Securities Co. in Portland. “Judy Sims has been running that company for a long time, and there’s something to be said for high-quality, consistent management. A lot of Egghead’s problems can be attributed to the fact that they’ve gone through a lot of top management people.”

“Software Spectrum is a strong company that has done a fantastic job of managing through a number of industry transitions,” says Robert Peterson, a senior research analyst for Piper Jaffray in Minneapolis.

By selling its CGE operation to Software Spectrum, Egghead has staked its future in the volatile retail sector. Software Spectrum, on the other hand, sells its software and services directly to corporations and government entities worldwide.

And, Peterson says, corporations are heading into a cycle of upgrading equipment and support systems. “Software Spectrum will certainly benefit from that cycle,” he says.

A couple of years ago, Peterson says, Software Spectrum went through some travails as it sought to expand its operations beyond the sale of software to service and support sales.

“Their stock got hammered down to eight bucks or so,” he says, but they’ve dealt with those issues successfully, and now Spokane is an important cog in their expansion strategy.

Peterson says the company’s determination to grow its technical services division is broadening Software Spectrum’s diversification from software sales to a broad-based service company. The technical services group is “helping them produce much higher margins in the fee-based services side of their business.”

The technical services group provides assistance to software customers on a fee basis. It also contracts with major software manufacturers to perform warranty services on their software.

Link Simpson, president of Software Spectrum’s technical services group, says Spokane is key to the company’s technical support strategy.

Right now, Software Spectrum employs about 180 people in the building it leases from Egghead. Those people work in a software customer service call center. But the company is adding a technical support call center.

“We have about 30 people on board, and that will get us into the 200-employee range in Spokane,” Simpson says. “And we are hiring on a very aggressive basis, and expect that number to be over 100 in the next six months.”

Simpson adds that, “At this point, the major growth for the technical support piece of our business in North America is planned for the Spokane facility. We expect to grow to 400 or 500 people over the next couple of years.”

Simpson says Software Spectrum has targeted Spokane for growth because of what they’ve found here.

“We are very pleased with the way the transition has been going,” he says.

But he’s not sure the Spokane labor pool offers enough people with the skills the company is looking for.

“I have a challenge everywhere in the world growing my technology staff,” Simpson says. “There is a global shortage of the people I need, and Spokane is no different.”

He said the company wants to offer specific training here to build those skills, and is working with the Spokane Area Economic Development Council to figure out the best way to do that.

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