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HELPING AMERICA GO WIRELESS Tessco leads way in cellular supplies


When Bob Barnhill reinvented his company 13 years ago, it was a bit like opening the only sandbag business in town the week before a flood.

It was 1982 when Mr. Barnhill took Towson Engineering Sales and Service Co., the small manufacturer's representative his father founded 30 years before, and turned it into Tessco Technologies Inc., a "one-stop-shopping" distributor of products for the wireless communications industry.

The next year the wireless telephone industry was born in his back yard when Wayne Schelle began building the original Cellular One network in the Baltimore-Washington area. Tessco was one of the pioneering company's original suppliers.

Now the cellular phone industry is serving more than 25 million customers in the United States alone and is growing at a rate of 25,000 customers a day. And "Barney" Barnhill is chief executive of a publicly traded company with $61 million in annual sales and the No. 66 ranking on Business Week's roster of 100 "hot growth companies."

When Tessco went public in September at $12, its stock immediately shot up to $16.50. Except for a brief sag in December, it has traded in the $16-$20 range ever since. It closed Friday at $15.75.

Sparks-based Tessco has had its share of luck, Mr. Barnhill admits. Back in the early 1980s, an optimistic AT&T; consultant predicted that cellular phone makers might be able to sell as many as 900,000 units by 2000.

"People were saying that cellular was just another CB radio and wouldn't become what it has," Mr. Barnhill said.

But Tessco's annual revenue growth rate of 21.4 percent is not just a matter of being in the right place at the right time. Analysts praise its strategic vision and efficient operations, while its corporate customers laud its service and broad inventory.

"They're extremely reliable and we depend on them 100 percent," said 10-year customer Jerry Moran, project manager for AT&T;'s Wireless and Professional Services business.

Tessco's business might not seem particularly fascinating on its face. It buys wireless communications industry equipment -- everything from cable to antennas to the little metal brackets that hold a cellular base station together -- from manufacturers and sells them to end users.

But Mr. Barnhill runs this seemingly conventional business with a style that smacks more of Silicon Valley than Hunt Valley.

Tessco awards no conventional titles except for those required by investor expectations. Mr. Barnhill is chairman, president and chief executive. Gerald Garland is treasurer and chief financial

officer. The

rest of the company's 144 employees are either team leaders or team members.

Mr. Barnhill said the flat management structure helps keep the company's focus on the customer rather than office politics. And the unusual approach didn't hurt when the company conducted a road show prior to its initial public offering.

"Surprisingly, that played well with investors," Mr. Barnhill said.

Meeting needs

While Tessco is a distributor, it shuns the role of passive middleman.

"They understand how to add value to their customers," said Kenneth Salmon, a distribution industry analyst with C. L. King & Associates in Albany, N.Y.

For instance, if a cellular company is installing a base station, Tessco will assemble everything needed to build that site into a "solution package" and ship it in one box.

It might not have the lowest price on each item, but for the customer, the savings in time can more than offset the difference.

"Our business is, at the end of the day, procurement economics," said Mr. Barnhill, a youthful-looking 51-year-old with dramatic golden mustache.

"Anything a customer buys from us they can buy someplace else. We're giving them the ease, the simplicity of buying anything they need."

According to Mr. Barnhill, no item is too mundane for Tessco to carry if it helps his customers, who include cellular dealers and carriers, utility companies and government agencies.


In one case, he said, a customer responding to a Tessco survey said he wished the company carried hook-and-loop tape for installing two-way radios and cellular phones in vehicles. Now Tessco does $500,000 worth of business in such tape each year, he said.

Customers say Tessco's broad selection is matched by its reliability. "If we call up tomorrow and order 11 different items in different quantities, the probability that they'll make a mistake on any one of the 11 items is close to zero," said Mike Gill, president of Americom, a Timonium-based cellular dealer and sales agent.

This ability to satisfy the customer has helped make Tessco the leading player in its market niche, analysts say. "Several of the other broad-line wireless distributors have strong regional reputations, but none is close to the recognition of Tessco," said a report by analyst Charles M. McDonald of William Blair & Co. in Chicago.

Mr. Barnhill said "habit" is Tessco's biggest competitor. "The industry grew up doing purchasing directly from the manufacturer," he said.

Good facility

One important factor in holding down Tessco's costs and ensuring its efficiency is its highly automated, custom-designed distribution center in Hunt Valley. The facility, which uses computer tracking and bar codes to eliminate paper records, has been cited by analysts as one of the company's strengths. "Relative to the size of this company, it's very slick," Mr. McDonald said.

Mr. Barnhill said that when the company was planning the warehouse, he hired a high-priced national consulting firm to design the flow system. "They came up with an ugly, confusing system" that would have cost $3 million, he said.

Rejecting that plan, Mr. Barnhill asked two Cornell industrial engineering students who were working at the company under a co-op program to design a system that stripped out all unnecessary costs. Mr. Barnhill said Tessco ended up using their design at a cost of $700,000.

For now, Tessco has only a handful of market analysts tracking its progress -- a factor that Mr. Salmon believes is holding down its stock market price.

Those who do follow the company find little to complain about except a dip in revenue growth rate during its most recent quarter.

But Mr. Garland, the company's chief financial officer, said the company is confident it can maintain revenue growth at a 20 percent rate while delivering earnings gains at a 30 percent rate over the next several years.

Indeed, the trends do look bright for Tessco. The cellular industry is just beginning its transition from analog to digital technology, the use of wireless phones to send data is in its infancy, and the paging market continues to grow.

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