L.A. Tech Firms Enjoy Spoils Of Homeland Security Boom
By KAREY WUTKOWSKI
Staff Reporter
Locally based contractors are cashing in as Washington turns to the private sector for its growing homeland security and technology needs.
The federal government awarded more than $115 billion in technology contracts in 2003 for computer networks, hardware and software systems. That’s almost double the $60 billion awarded the year before, according to INPUT, a Reston, Va.-based research firm.
Defense-related contracts accounted for 72 percent of the total, although specialized defense technology, such as missile-guidance systems, were excluded.
It’s not clear how long the spigots will remain open.
Some analysts believe the government’s efforts to use technology to streamline its operations are just gearing up. Others consider the homeland security-driven defense spending a temporary phenomenon.
“With the election year, a lot of folks would say that no matter who wins, it’s not good for the federal budget,” said Michael Keller, an analyst who covers one of L.A.’s biggest winners, Computer Sciences Corp., for KeyBanc Capital Markets.
Keller argues that both President Bush and Sen. John Kerry could look to defense cuts as a way of dealing with the escalating budget deficit. “There’s a lot of rhetoric about the deficit and the need to be especially vigilant,” Keller said.
For now, local companies are enjoying the spoils. Nationwide, the top recipient of government technology contracts was Los Angeles-based Northrop Grumman Corp., with $9.62 billion in 2003 contract awards, according to INPUT. Third on the list was El Segundo-based Computer Sciences with $5.09 billion.
Other large defense players operating in the area, such as Raytheon Co. and Lockheed Martin Corp., provide subcontracting opportunities for smaller companies, said Victor Hwang, president and chief operating officer of Larta Institute, a Los Angeles nonprofit that promotes technology companies.
When private sector spending shriveled after 2000, many tech companies started focusing on the federal sector, which provides a more consistent source of revenue, Hwang said.
At the same time, the federal government increased its approach to spending on technology, said Jon Korin, executive director of strategic development for Los Angeles-based Northrop Grumman. It took a couple of years for spending to kick in.
“The government is trying to do more with less and is trying to improve productivity,” Korin said. “IT is the flywheel that drives productivity increases.”
The federal government is looking to modernize its entire computer infrastructure, Korin said a trend that’s even more accelerated within the Defense Department.
“The DOD is undergoing a transformation to deal with new world conditions,” Korin said. “Absolutely critical to the transformation is network-centric warfare. It increases the reliance on networked and secure information.”
Albert Lin, an analyst with American Technology Research in Greenwich, Conn., said it would take years for Washington to fulfill its new commitment toward updating its technology services. “Government technology requirements are growing with homeland security, tax services and data storage,” Lin said.
Keller has a more pessimistic look, projecting that federal spending on defense-related IT services will shrink in the next couple of years.
The acquisition of technology and outsourcing firm DynCorp in 2003 helped Computer Sciences bring in $17.2 billion in government contract awards in its 2004 fiscal year, which ended on April 2. That was a 123 percent increase from the prior year.
Since then, Computer Sciences has won a contract with the U.S. Navy to provide professional support services. The contract could be worth $950 million.
A number of smaller local companies are also throwing their hat in the federal ring.
Reseda-based SADA Systems Inc. used a government contract to bump 2003 revenue over the million-dollar mark. The consulting and development firm, founded in 2000, landed its first federal government contract in 2003, selling $168,000 worth of Dell computers to Wright Patterson Air Force Base in Ohio.
“We saw it as a great opportunity,” said Tony Safoian, president and chief executive of SADA.
Canoga Park-based E Team Inc., which provides emergency and crisis management software to government agencies, saw its sales double in 2003 and expects them to double again in 2004. The company currently has annual revenues of less than $10 million.
“We noticed going into the third quarter of last year that there were signs of an initial wave of (government) funding, and it became a very significant wave of funding for us in the fourth quarter,” said Matt Walton, vice chairman and founder of E Team.
