El Camino Resources International, Inc. Business Information, Profile, and History

History of El Camino Resources International, Inc.

El Camino Resources International Inc., through its primary operating company, El Camino Resources, Ltd., is a leading reseller and lessor of mainframe and midrange computers, with IBM mainframes as its core business. El Camino ranks as the second largest U.S. computer lessor after publicly-held Comdisco, Inc. and is also among the fastest growing private companies in the United States. The company has increased its revenues and profits every year since its founding in 1979. Even as the mainframe market matured in the early 1990s, El Camino continued to expand through acquisitions of other lessors and software companies. El Camino's value-added strategy in computer sales and leasing has distinguished itself from the competition.

El Camino was founded in 1979 in Northridge, California, by David E. Harmon and David A. Wolff, to provide independent, customer-oriented sales and leases of used mainframe computers in what is known as the resale market. Harmon became the new company's president and later assumed the additional titles of chief executive officer and chairperson, while Wolff became vice-president of trading and, later, executive vice-president of portfolio management. The two founders were joined by a third principal, Mel Kleinman, who later became executive vice-president of sales.

Mainframe computers are such large and expensive systems that their corporate use often does not justify the capital expenditure of an outright purchase of a new computer. Instead, computer users often prefer either to lease mainframes or to buy used ones, and those companies that purchase new ones can recoup some of their expenses by selling the computers back into the resale market. While computer manufactures have handled such leasing and resale services, the founders of El Camino saw the opportunity to provide better service and be more responsive to the market in the capacity of an independent and purely wholesale and retail company. El Camino also provided customer financing from the beginning as part of its services.

El Camino began its business with the leasing and selling of used IBM mainframe computers and peripherals, such as printers and terminals, directly to corporate clients. A year after its founding, the company also began selling and leasing some new computer equipment. In 1983, El Camino diversified into non-IBM computers by offering VAX computers from Digital Equipment Corp. (DEC). Later El Camino established a DEC Division in Irvine, California. In addition to VAX computers, this division traded in communications and office equipment, bank point-of-sale systems, and CAD⁄CAM systems.

In the mid-1980s, El Camino began offering disaster recovery services. When one of its client's computer rooms was flooded after heavy rains caused its roof to collapse, El Camino was able to deliver and install a $1.5-million computer system within a week. As other companies began to request similar disaster recovery services, El Camino responded by developing a disaster recovery plan that involved a monthly fee and guaranteed the replacement of IBM 4300 computers and peripherals within five working days. Among the clients who called upon El Camino to help restore computer systems after damage to buildings were Mazda Motors of America Inc., whose U.S. data center was destroyed in a storm, and health and welfare benefits administration firm U.S. Administrators, which had a regional office destroyed in a fire.

The expansion of the corporate computing market fueled El Camino's growth. The company's revenues grew from under $40 million in 1984 to $165 in 1988, with a growth rate of nearly 80 percent between 1987 and 1988. In early 1988, the company diversified into reselling IBM mini- and microcomputers. El Camino established a midrange, or minicomputer, leasing division, El Camino Application Solutions Co., as an IBM business partner to sell IBM's newly launched AS⁄400 midrange computer series. El Camino correctly perceived that midrange computers would be a faster growing sector of the computer industry. The AS⁄400 turned out to be one of the most popular general-purpose midrange computers of the late 1980s and 1990s.

Selling IBM AS⁄400 computers under an Industry Remarketer relationship with IBM required that El Camino provide value-added software and implementation services in addition to meeting strict technical and financial standards. As with hardware, El Camino was not a developer or manufacturer of software but contracted to resell software developed by other vendors. After IBM introduced its RS/6000 RISC-based workstation 1990, the Application Solutions division began marketing this computer as well.

Also in 1988, El Camino entered the microcomputer leasing market with a $1.2-million contract with Nynex Business Centers, permitting Nynex to lease the computers. As such, El Camino began indirectly marketing hundreds of IBM PS-2 microcomputers annually to corporations.

In addition to financing and disaster recovery, El Camino had also added installation, software integration, training, maintenance, and on-site support. These services were enhanced when, in 1988, El Camino acquired Infinite, an engineering firm that reconfigured IBM and DEC computers and offered some maintenance services. The acquired company became a subsidiary of El Camino, Infinite Computer Group Inc.

In June 1989, El Camino formed a new disaster recovery firm, El Camino Recovery Services, as a joint venture with Global Marine Inc. of Houston, Texas. Subscribing companies could immediately use the computers at the Houston site if their own systems were damaged. El Camino Recovery Services also provided computer systems in trailers that could be brought to a client's site to handle short-term needs. El Camino also promised replacement of damaged computers within seven days and offered rates for use of disaster recovery services that were lower than that of the competition. The demand for disaster recovery services had grown in the 1980s, due to new regulations requiring banks and financial institutions to be running again within 72 hours of a computer failure.

El Camino began looking for an investment partner in the late 1980s. A relationship with General Electric was pursued but never completed. Then, in spring 1990, two Japanese companies--Japan Leasing Corp. and Applied Technology Corp.--offered substantial investment capital. Each company purchased a 12.5 percent stake in El Camino, and Japan Leasing appointed a representative to El Camino's board of directors. The deal enabled El Camino to boost its annual lease volume and also increased El Camino's opportunities for sales and leases of used computers in Japan. Japan Leasing's stake in El Camino was later increased to 25 percent.

Revenues for the fiscal year ending April 30, 1990, increased 62 percent to $254.95 million, net income rose nine percent to $3.33 million, and leased assets rose 33 percent to $186.28 million. At the same time, many competitors were reducing or liquidating their leased asset portfolios. El Camino's revenues for the fiscal year ending April 1991 rose almost eight percent to $274.47 million, and net after-tax earnings rose nearly eight percent to $3.59 million. In 1991, El Camino was earning 30 percent of its revenues from leasing.

By the early 1990s, the leasing business began growing at a faster rate than previously. The increasing rate of computer technological obsolescence made leasing much more attractive than buying, because lease agreements were typically structured to allow frequent hardware upgrades. The leasing business also fared well during the recession of 1990-91, as leasing became a more affordable alternative to purchasing computers for many companies.

At the same time that the leasing market was expanding, El Camino also began to take a more aggressive approach to the market. Previously El Camino had been more cautious, leasing equipment only when price and volume guaranteed a predictable used equipment market. With a strong financial backing from Japan Leasing and a strategy of seeking other investors, El Camino could afford to lease and sell more new computers whose success in the market was still unknown. This proactive approach helped El Camino expand its market share as the leasing industry consolidated.

In January 1991, El Camino acquired 80 percent of the entire leasing portfolio of Econocom USA, Inc. of Memphis, Tennessee, more than doubling the number of El Camino's equipment leases. El Camino thus opened a Memphis branch and employed several former Econocom sales representatives. The acquisition gave El Camino, whose strength continued to be in mainframe computers, a broader leasing portfolio in IBM midrange computers, the System⁄32X and the AS⁄400. The acquisition also gave El Camino markets in cities in the southeastern part of the United States, where El Camino had previously not had a strong presence, and, thus, the company's number of offices across the country grew to fourteen. Ten months later, El Camino became a Master Value-Added Reseller to DEC with an agreement between El Camino, DEC, and software developer MCBA Inc. to sell DEC computes with MCBA software with El Camino's financing and technical support services.

By 1991, through its El Camino Application Solutions Co. division, El Camino was providing midrange computers bundled with software applications specialized for customers in nine different industries. These included retailers, hotels, hospitals, lending institutions, building material suppliers, and telephone and utility companies. At this time, the three-year-old midrange division was accounting for about ten percent of El Camino's business.

Although the software El Camino sold, like its hardware, was acquired from other vendors, in November 1991 El Camino began to take on the development of proprietary, industry-specific software when it acquired assets of Darcor, a New Orleans-based developer of application programs for IBM System⁄36 and AS⁄400 midrange computers. A new Darcor Products Division of El Camino Application Solutions Co. was created, which brought software development in-house for El Camino for the first time. Darcor's primary products were the "Woodstock" program, which provided automated management of wholesale and retail sales management for lumber and building supply companies, and the "InvenTrac" program, which automated inventory control for warehouses. The acquisition also gave El Camino its first New Orleans office.

In March 1992, El Camino acquired from Bell Atlantic a majority share of Applied Technology Corp. (Europe), based in London, and thus expended its business into the European market. Through the acquisition by El Camino, Applied Technology's business of selling high-end IBM computers was augmented to include leasing activities.

Revenues for fiscal 1992 jumped to $337.34 million, and net income grew to $4.18 million. In fiscal 1993, revenues rose 33 percent to $447.47 million and net income rose 12 percent to $4.67 million, with substantial growth in retail sales of used computer equipment. As client companies downsized their computer operations, El Camino's midrange business expanded.

El Camino's IBM midrange computer reseller and software division, El Camino Application Solutions Co., changed its name to REAL Applications Ltd. in January 1992. In June 1993, this division was made into a subsidiary, and under this subsidiary two new divisions were formed, REAL Solutions Integrators and REAL Software Systems. Existing divisions under REAL Applications Ltd. were Level One Technical Support, the operating system support group for IBM midrange computers; and REAL South Division, the new name for the Darcor Products Division. REAL Applications was the IBM Industry Remarketer firm with the highest revenue in 1993 and as such was named a Premier Business partner by IBM.

Meanwhile, the REAL Applications Ltd. subsidiary expanded its software offerings through additional acquisitions in the early 1990s. In August 1992, it acquired assets of Management Computing Consultants Inc. of New Orleans, a developer of industry-specific software for the IBM System⁄36 and AS⁄400 computers. The product line was merged into that of the REAL's Darcor Products Division, more than doubling Darcor's product offerings. In March 1993, REAL acquired two more midrange software development companies: Glenn A. Barber & Associates, developer of Generation II accounting and distribution management software, and Entertainment Software Solutions, which provided software for motion picture and television distribution companies for their management of licensing agreements, royalties, and film product distribution.

At the end of 1992, El Camino's breakdown of products was estimated at between 30 to 40 percent in new and used IBM mainframe computers using the MVS operating system; 18 to 20 percent direct access storage device (DASD) peripherals; seven to ten percent IBM AS⁄400 midrange and RS⁄6000 workstation computers; seven to ten percent computer communication controllers; five to eight percent DEC computers; and the remainder being peripherals, CAD⁄CAM systems, and miscellaneous equipment.

In November 1992, the expanding companies, both El Camino and its REAL Applications subsidiary, relocated from Northridge to a new, larger facility in Woodland Hills, California. In 1993, El Camino had 26 sales offices in 19 states in addition to international operations. In the fiscal year ending April 1994, El Camino's annual revenues topped $500,000.

The mainframe business--especially in the resale and leasing markets--remained strong into the 1990s. Although midrange computers, workstations, and personal computers were becoming increasingly common in enterprises of all sizes, certain companies that had huge volumes of data processing needs continued to rely on mainframes. As their data processing requirements became ever greater, IBM continued to introduce new mainframe computers, such as the 9121 and 9021 series in 1993, which El Camino added to its product line.

IBM's corporate downsizing meant even more business opportunities for El Camino, for IBM began encouraging third-party computer system offerings which it was no longer taking on itself. For example, in spring 1994, REAL Applications cooperated with software company Cynosure Inc. to offer information database management software for the publishing industry bundled with the AS⁄400 computer in a program supported by IBM.

Nevertheless, new challenges faced El Camino in the mid-1990s. The cycle of computer product introductions was accelerating, and client demands were growing. Companies increasingly wanted total information system solutions, instead of simply data processing systems. Unlike the computer manufacturers, however, El Camino's line of business would allow it to be more flexible in responding to such changes in the market.

Principal Subsidiaries: El Camino Resources, Ltd.; REAL Applications, Ltd.; The Infinite Computer Group Inc.; El Camino Resources Canada Ltd.; Applied Technology Corporation (Europe) Limited (U.K.); ATC Systems Leasing GmbH (Germany); ATC (Asia) Pte. Ltd. (Singapore).