By Russ Walker washingtonpost.com Staff Writer
Thursday, May 13, 2004; 5:22 PM
In the government IT contracting sector, there's Lockheed Martin, and then there's everyone else.
Lockheed isn't just a huge player on the military hardware scene. It generated $5.5 billion in federal prime IT revenue alone last year, a fraction of the company's $31.8 billion in 2003 sales but still $600 million more than its closest competitor, Northrop Grumman.
Anyone who doubts Lockheed's preeminence should pick up a copy of this week's Washington Technology. The magazine's annual Top 100 places the Bethesda, Md.-based company at the top of the list -- for the 10th straight year.
Washington Technology's profile of Lockheed chose to focus the company's current challenges, particularly its bid to acquire San Diego-based Titan Corp. (No. 9 on the Top 100 list). The profile notes that "[f]ederal investigations into allegations that some of Titan's international consultants and subsidiaries made improper payments to foreign government officials to drum up business abroad have stalled the acquisition. ... Lockheed Martin is requiring Titan either to receive a written exoneration from the Justice Department or enter a plea agreement and complete the sentencing process before the purchase goes forward."
In the end, Titan will become part of Lockheed, WT says, meaning that Lockheed "will have secured its lead in the race for federal IT contract dollars for many years to come, and placed itself beyond the reach of its closest competitor."
So how can Northrop Grumman ever hope to unseat Lockheed? Maybe by out-acquiring it. "One lingering question," the Washington Technology profile says, "is whether Northrop Grumman will acquire more companies to keep pace with Lockheed Martin. Its last buy was its 2002 purchase of TRW Inc." VP Steve Carrier told the magazine that "the company doesn't have any acquisition candidates in mind in the near term," and at least one analyst told WT it will likely take a big deal or two for Northrop to catch up to Lockheed. Meanwhile, Soundview Technology's Howard Rubel said one challenge facing the company is that it is "still a collection of businesses." Rubel: "It means that it's hard for them to necessarily go after some of the mega-size contracts, but this is not to say they can't compete in this area."
It's clear that growth-through-acquisition is a key model for contractors. No. 3 on the Top 100 list this year is Computer Sciences Corp., which climbed two spots from last year based largely on its purchase of DynCorp. The move "beefed up [CSC's] expertise and manpower, which underscores its ability to handle some of the government's biggest awards -- capabilities enjoyed by just a handful of its largest competitors."
Washington Technology wrote expanded profiles of each of the top 20 companies on this year's list, which you can see here. At No. 13 is Dell Inc., which didn't just make it on there by selling PCs to government agencies. The company's "IT services, including infrastructure services, help desk, managed services and network design, assessment, security and redundancy, are growing much faster than its product business," according to Tom Buchsbaum, vice president of Dell Federal Systems.
Another piece looks at Huntsville, Ala., headquarters location for three Top 100 companies -- Intergraph Corp., Camber Corp. and CAS Inc. "With major military, FBI, missile defense and NASA operations on the 38,000 acre Redstone campus, many major systems integrators on the Top 100 have operations there. Among them: Science Applications International Corp. at No. 5, and Computer Sciences Corp. at No. 3. CSC bought its way to a major presence in Huntsville when it acquired Nichols Research Corp. in 1999. About $18 billion in federal funds are managed at Redstone, according to Mike Ward, vice president of government affairs at the Huntsville-Madison County Chamber of Commerce. Of that amount, $3 billion stays in Huntsville, he said."
The Washington Post ran an article on the list in Monday's edition, noting that "[c]ompanies that sell complex computer systems to the military and national security agencies dominate the race for government technology contracts." The Post also picked up on IBM's big move up the list. Big Blue "climbed to No. 11 from No. 18 as the value of its contracts soared to $910 million, from $394 million in 2002. IBM, the world's largest computer company, became the largest technology consulting company as well when it bought PricewaterhouseCoopers Consulting in 2002."