With commercial and consumer spending on computer goods in the dumps, high-tech companies increasingly are seeking new business from an old ally: the federal government. Between the Department of Defense, the new Department of Homeland Security and other agencies, the government is poised to pour tens of billions of dollars into new technology starting next year.
Naturally, beleaguered tech companies are lining up to try and get their piece of the pie. Some are taking risks by changing the entire focus of their business or merging with others in hopes of winning Uncle Sam’s favor.
‘‘There are suddenly a lot of people interested in helping out with national security — especially as the economy has downturned,’’ said Jan Walker, spokeswoman for the Defense Advanced Research Projects Agency, the Defense Department’s research and development arm.
DARPA got a 17 percent boost in its annual budget for the fiscal year that began Oct. 1. It plans to spend its $2.7 billion on everything from researching unmanned aircraft and border surveillance equipment to a giant computer database that could track every American’s travel plans, credit card bills and even medical records to weed out potential terrorists.
The Defense Department will spend about 10 percent of its projected $378 billion budget on technology-related equipment and services, according to some estimates.
That’s on top of billions more the new Department of Homeland Security is planning to spend as part of its $37 billion budget. Tech expenditures are expected to include databases to track immigrants and software to protect infrastructure such as the Internet, air traffic control systems and electricity grids from cyber attacks.
Even without the new security and defense projects, the government is expanding its status as the biggest buyer of computer goods on the planet.
Federal agencies are expected to spend between $52 billion and $60 billion this fiscal year on computers and computer-related services, about 15 percent more than a year ago.
Much of that will go toward meeting ‘‘e-government’’ initiatives President Bush signed into law Tuesday. The aim of the E-Government Act of 2002 is to streamline agencies and make them more business-like through computer upgrades, online purchasing and budget management programs, and other technological improvements.
‘‘This is not just a one-year event,’’ said Chris Penny, an analyst with investment banking and brokerage firm Friedman, Billings, Ramsey Group, Inc. ‘‘This could be a three- to five-year cycle with a lot of big projects, a lot of big integration programs lasting for some time.’’
Indeed, while commercial spending in information technology is shrinking — some forecast a decline of more than 2 percent in computer-related spending this year, with only slight growth next year — government spending on information technology is expected to continue growing at double-digit rates for several years.
But as tech companies new to federal work are only starting to learn, government money isn’t usually easy money, and the world’s biggest bureaucracy doesn’t operate on the dot-com era’s ‘‘Internet time.’’
It may take until the end of next year or even longer for those bulging budgets to filter down to contractors, too long for some struggling tech companies searching for a quick fix in a bad economy. The possibility of budget cuts and war with Iraq may ultimately mean some of the money earmarked for technology will end up going to pay for bullets and bombs instead.
‘‘I’m not sure there’s going to be the big cornucopia that everybody initially thought there was going to be,’’ said Bill Archey, president of AeA, the technology trade group formerly known as the American Electronics Association.
At the same time, ‘‘given all the newness and the chaos that’s almost built-in with the homeland security department, it’s going to take a while for everything to unfold,’’ Archey said. ‘‘We don’t even know who all the key decision-makers are going to be yet.’’
Other potential pitfalls abound.
Companies often must meet stringent government qualification criteria before even beginning to tackle mountains of paperwork often required to submit bids for work. And as in other industries, getting into the government game depends on who you know — which is partly why only a relatively few companies handle the bulk of government tech work today.
These challenges haven’t stopped companies from following the money to nation’s capital, even if it means making radical changes.
TippingPoint Technologies Inc. was founded two years ago in Austin, Texas, to sell security software to big businesses and Internet companies trying to protect themselves from viruses, computer snooping and hacker attacks.
But with commercial buyers scarce, TippingPoint decided to shift its focus to government work after the Sept. 11, 2001, terrorist attacks. In recent weeks, the 100-employee company announced several alliances with established government vendors that could be key to its future.
‘‘We did not have a government focus up until just a little before (Sept. 11),’’ cofounder Kent Savage said. ‘‘Today, I’d think it’s fair to say we now see that more than half of our business on a two-year horizon could be in the government sector.’’ The company has yet to make a profit or report any revenues.
Other companies are changing not just their business plans, but their ownership. Analysts and others predict an increasing number of mergers and acquisitions in the government-related tech business in coming months.
On Dec. 13, El Segundo, Calif.-based information technology giant Computer Sciences Corp. announced it would spend $950 million in cash, stock and debt to buy DynCorp Inc., a 56-year-old, privately held company on the other side of the country.
Why? Because DynCorp, headquartered in Reston, Va., gets 98 percent of its revenue from government work.
‘‘We really like this federal government business. . . . It’s big-contract, low-investment,’’ CSC Chief Executive Van Honeycutt said in announcing the deal.
The combination of the CSC and DynCorp, Honeycutt said, was built around hopes that together the chances of selling services to the new Department of Homeland Security would be greatly improved.
DynCorp has 23,000 employees and last year had $2.3 billion in sales. Yet company officials said they realized that with the growing opportunities for federal government work, DynCorp had to be even bigger and more diverse to compete.
‘‘There is a massive amount of consolidation in the industry and there is — more than ever before — a need for a diverse set of competencies,’’ DynCorp Chief Executive Paul Lombardi said. ‘‘Even though DynCorp is a $2.3 billion entity, we were private and debt-financed. We simply could not be a consolidator.’’
Quelle: Dayton Daily News
