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Government IT Review - Cynthia L. Webb

Wheels of Fortune

By Cynthia L. Webb
washingtonpost.com Staff Writer
Thursday, August 5, 2004; 11:37 AM

Government contractors are facing bleak times in coming years, as the growth of Uncle Sam's technology budget declines, according to a study covered in this column three weeks ago.

But wait, last week this column included an item on a wave of new federal contracts being doled out to companies -- 50 percent more were handed out in the second quarter of 2004 compared to the same period last year.

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So are contractors in for tough times, or is the government IT sector rolling ahead at full steam? According to the latest financial results from most of the top 10 federal contractors, times are indeed looking good.

Even contractors that have been under pressure are optimistic. "Our contract pipeline is now the strongest it has been in two years," said Electronic Data Systems chairman Michael H. Jordan, as quoted last week by The Wall Street Journal. Jordan was keying off of his company's report last week of rising profit and revenue for its second-quarter.

Meanwhile, yet another study predicts that telecommunications contractors can expect more federal business, thanks to spending from the Departments of Homeland Security and Defense. Reston, Va.-based research firm Input this week said it expects the federal telecom sector will grow 40 percent by 2009 -- from $15.2 billion this fiscal year to nearly $21 billion in fiscal year 2009.

"Telecommunications stands out as one of the main technology segments that is seeing increases in near term spending due to homeland security initiatives," Chris Campbell, Input's senior analyst of federal market analysis said in a statement. "Telecommunications will support information sharing goals between agencies as well as communications between federal agencies and first responders at the state and local government level."

Using the ranking of top federal contractors issued earlier this year by fellow Washington Post Co. publication Washington Technology, here's a look at how most of the Top 10 federal contractors are faring these days:

Lockheed Profit Engine Keeps Churning

Lockheed Martin, the No. 1 federal contractor, last week reported a net income of $296 million for its second-quarter, a 22 percent jump from $242 million in profit during the same quarter last year. The company's revenue grew from $7.7 billion to $8.8 billion.

Lockheed's positive numbers were due to "higher military spending as they (the military) gear up and get ready for the wars of the future," according to Troy J. Lahr, a Legg Mason defense analyst, as quoted by The Washington Post.

The Bethesda, Md.-based company is being cautiously optimistic with its earnings forecast. "Lockheed maintained its earnings forecast for the year, saying it expects to make between $2.50 and $2.60 per share on earnings of $2 billion to $2.2 billion. That's below the forecast of some analysts, who had predicted 2004 results of $2.63 per share. With the strong earnings report and an expected continued increase in defense spending by the federal government, analysts said they thought Lockheed should be more bullish about the year," the Associated Press reported. Paul Nisbet, a JSA Research analyst, told the AP: "I think there was a bit of disappointment that they didn't raise their guidance," he said. "The general consensus is that they are going to exceed what they are guiding."

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