The Internet has turned business on its head at Bermuda Computer Services, the local dealer for IBM. It has practically wiped out the company's computer sales and has turned what was primarily a computer dealership into a "solutions provider'' for the hungry e-conomy.

A letter to shareholders from chairman Donald Lines last week made it clear that the company has been forced to modify its strategy as the world goes online -- computer sales especially. The company hopes that Transact-e-Biz.com, its e-commerce unit, will eventually perform to make up what has been lost by other avenues of business.

BCS's sales during the six months ended June 30 were $1,761,000, compared to $2,340,000 during the same period last year -- a drop the company attributes entirely to IBM's decision to sell PCs direct online.

The computer outlet, operating at a loss of $93,066, has now been reduced to a service and support centre.

"We are attempting to find ways in which to reduce the cost of providing this service without the earnings of continuing sales of new PCs -- for we cannot expect to make a profit from only handling warranty claims for those who buy IBMs over the Internet,'' said Mr. Lines.

"We have a challenge as to how we are going to address these continuing losses of providing warranty claims services for there is no way in which we can compete with IBM itself who offers the same PCs over the Internet.'' Yet software solutions offered through BCS's subsidiary, BCS Agencies, have made up for the loss. Earnings for the six-month period stood at $227,689, including the sales of $91,177 in investments. In the first half of 1999, the company netted to $189,938. Gross margins on June 30 stood at $548,680, more than double what they were last year.

Transact-e-Biz.com, launched in February, has yet to yield profits, with start-up costs resulting in a loss of $76,403. The wholly-owned subsidiary encompasses BCS's Internet, application and managed hosting services that will be marketed worldwide. Directors have agreed to forgo dividends until the venture becomes profitable.

"Our business plan...made it clear that investing in e-business would not guarantee profits in the fast-moving e-commerce hosting and Internet space but we could not sit by as the computer marketplace evolves,'' said Mr. Lines.

Strategy change "The success of Bermuda in its efforts to become a global e-commerce centre will directly affect our success.'' BCS claims to have the most sophisticated e-commerce solution in Bermuda, connected to AT&T's Internet backbone in the United States. The company also plans to become the fifth competitor in Bermuda's Internet access market when it launches its new commercial and residential service in conjunction with AT&T (see sidebar).

BCS estimates start-up costs for the new lines of business to be at least $1.5 million, having made an initial investment in equipment of $465,000. BCS also expects to incur substantial expenses in marketing its services and recruiting and training staff, which includes the development of an in-house apprenticeship programme.

Donald Lines