Security Sector Still Hot
March 18, 2004 11:45am
Newsbytes
Who said the consolidation trend in the government technology sector was over?
Well, no one. But the slew of mergers that took place in 2002 -- fueled by expectations that companies needed to get bigger to land complex (and lucrative!) government contracts tied to the budding war on terror -- seemed to level off in the past 12 months.
Until the last week, that is, when American Management Systems was carved up and sold off to two rival firms in a combined deal worth $858 million. This week brought news that a unit of General Electric is plunking down some $900 million for InVision Technologies Inc., a company that makes devices to detect explosives. InVision's security systems are a hot commodity, with the Transportation Department buying $105 million worth of its products. Now GE Infrastructure plans to expand InVision's reach and its own security technology offerings into all facets of mass transportation and critical infrastructure, including military installations and power plants.
Wall Street activity indicates that investors are pinning hopes that other homeland security-related companies will hit it big too, even if the floodgates for homeland security funding have not opened as wide as the IT industry has hoped. "Actual spending has not matched expectations, but then along comes something like the Madrid bombings and everyone asks, 'How safe are we?'" said analyst James Kelleher of New York's Argus Research Corp., according to The Associated Press. Robert Stone, an analyst with SG Cowen Securities Corp., offered this observation to Canada's Financial Post: "As sad as it is to contemplate, the events in Spain last week make it clear that airports aren't the only places where you're going to have to worry about these things. I don't personally believe that this is a problem that's going away anytime soon -- and that's the market opportunity that GE sees."
The San Francisco Chronicle reported that investors remain enamored of the security sector: "[d]espite the Dow's 137.19-point drop Monday, stock in OSI Systems and American Science & Engineering, which make X-ray inspection systems for parcels and cargo, were up 1.5 percent and 4.1 percent, respectively. Shares of Identix, which makes fingerprint-identification equipment, were up 4.1 percent. Stock in Viisage Technology, which makes facial-recognition technology, was up 13.2 percent."
The Financial Times reported that numerous industrial and defense firms "have been expanding aggressively into the security industry in recent months as the threat of terrorism and potential for high-technology solutions makes it one of the fastest growing markets. GE rival United Technologies last year spent $1bn acquiring Chubb, a UK security group specialising in electronic security and fire protection products."
InVision's track record helps show why it was such an attractive acquisition target. The Contra Costa Times noted that the "federal government installed hundreds of InVision machines, which cost about $1 million each, in airports including San Francisco International Airport and Oakland International Airport." The Los Angeles Times said GE plans for Newark, Calif.-based InVision to become "a cornerstone of GE's 2-year-old security business, which builds video surveillance systems and devices to detect explosive materials, company executives said. InVision's CTX machines are deployed in 7 out of 10 major U.S. airports, and analysts expect demand for the $1-million scanners to continue to grow as long as the public is worried about terrorism."
According to the Chronicle, InVision's "stock has climbed almost 1,500 percent since September 10, 2001. Although it wasn't bombs on the jets that killed thousands of people on Sept. 11, Congress responded by requiring U.S. airports to inspect all checked baggage with explosive-detection systems manufactured by either InVision or a division of L-3 Communications. Although L-3 is a bigger company, InVision had a big lead in the bomb-detection market, and got the lion's share of the business. The rest of the industry includes companies that provide facial or fingerprint recognition technology (for tracking terror suspects); devices for detecting anthrax or other deadly diseases; and security services such as background checks, wiretaps and other types of surveillance."
So did GE pay too much for InVision? According to The San Jose Mercury News, "now that so many machines at airports are in place, analysts said, InVision's sales were slowing."
Nevertheless, GE said in its statement that the InVision deal will boost its ability to offer security and high-tech detection products to help protect airports, mass transportation systems, border crossings and critical infrastructure locations such as military bases and power plants. The Merc has additional details on what both companies gain from the deal: "GE will combine InVision's CT-scanning technology -- similar to computerized tomography used in medicine -- with its Ion Track system, which searches for particles of explosives and narcotics."
The Motley Fool financial Web site noted that InVision's "stock rose 20% to reach the roughly $50 per share that GE will be shelling out for the privilege of taking a lead in the homeland-security market over defense rivals Lockheed Martin and Northrop Grumman."
InVision had a little PR problem crop up this week after the GE deal was announced -- the SEC is looking into allegations of insider trading of InVision Technologies stock options in the days prior to the mega sale, Bloomberg reported. "When I was looking at it in real time, it seemed like to me that it was questionable," Larry McMillan, president of McMillan Analysis, an options analysis firm, told the wire service "Maybe some people knew something, maybe not. The volume looks suspicious. Probably there was some kind of a leak. But will they ever prove it? No way."
InVision yesterday said it is cooperating with the SEC, Dow Jones Newswires reported, noting that the SEC "alleged that unknown purchasers acted on inside information to illegally trade the options. The trades, through several foreign banks prior to the merger announcement, realized profits of about $1.27 million."
* U.S. immigration officials are letting people make appointments online to help cut long wait times. "The new service, called InfoPass, is available for scheduling appointments in the downtown Los Angeles, Santa Ana and San Bernardino offices of the U.S. Citizenship and Immigration Services. ... Several immigration services are already available online, including downloading forms, checking on cases and replacing or renewing green cards," The Los Angeles Times reported. "The service was launched as a pilot project in Miami last year and eliminated all lines within three weeks, according to Jack Bulger, district director of the immigration service's Miami office." The agency has posted a fact sheet on the InfoPass program on its Web site.
* The Washington Post today has an article on the trend of defense firms emphasizing the involvement of U.S. products and components to secure government contracts. An excerpt: "Bidders for Pentagon contracts are going to great lengths lately to highlight the American content of their systems. Companies already have to meet rules requiring that 50 percent of any weapons project must be American-made. But the difference between winning a contract or not -- especially in this sensitive post-Sept. 11, 2001, era -- could turn on the number of American jobs promised and the percentage of American parts above 50 percent that a program contains, industry analysts said."
* The General Accounting Office released a report Tuesday that lists 18 types of commercially available security technology that government agencies can use to bolster their IT systems, Federal Computer Week reported. The technologies "fall into five categories: access controls, system integrity, cryptography, auditing and monitoring, and configuration management and assurance. The technologies that fit under those headings include everything from digital signatures to network management tools," the article said. Here's a link to a PDF copy of the GAO report.
* State and local leaders are clamoring to get their hands on more homeland security funds to upgrade emergency response resources. Perhaps this might help: The Department of Homeland Security said this week that it has formed a task force of state and local officials to help move homeland security funds to first responders. According to Global Security Newswire, Massachusetts Gov. Mitt Romney (R) is heading the panel, which was created after "months of squabbling between state and local officials over what Homeland Security Secretary Tom Ridge last month called a state-level 'logjam' preventing federal funds from reaching community emergency responders." On a related note, Federal Computer Week said "a report by DHS' inspector general expected next month documents that the federal government has done a good job in dispersing such funds, but that they're being held up at the state level. In some cases, the states need to ensure they're not duplicating efforts and that the process is effective, the report is expected to say."
* Tech companies aren't the only ones outsourcing technology jobs overseas. So are some state governments. Utah is sending some call center jobs to India to cut costs. "Utah residents with questions about their welfare benefits will be routed to a customer-service call center in India, as part of a $7.8 million deal that is drawing criticism for sending jobs overseas," The Associated Press reported. "Utah had been handling the calls through a Wisconsin office until last year, when state officials approved the contract with eFunds, a company with more than 900 call centers."
* The collaboration software product of Groove Networks Inc. (www.groove.net) is being used by The Coalition Provisional Authority in Iraq. "The authority has no direct access to Defense Department networks. The team needed a secure system to exchange documents and instant messages and to collaborate with one another, said Donald Harrison, special assistant to the principal deputy assistant secretary of Defense for networks and information integration. Harrison helped set up the contract with" Beverly, Mass.-based Groove, Government Computer News reported.
* Watch out Microsoft, more government agencies are taking a look at open-source operating systems like Linux to help thwart hacker attacks and cut costs. National Journal's Technology Daily reported "officials are exploring new ways to incorporate the technology into e-government initiatives, senior government technology officers said Monday." Some senior IT officials are clearly sold on open-source: Federal Emergency Management Agency CIO Barry West, "said he became an open-source 'convert' a decade ago while working as CIO of the National Weather Service."
* While doing IT work for government agencies here and abroad is where the dough is these days, it's not always trouble free. Just ask Hewlett-Packard. The Canadian government wants H-P to return $120 million over allegations of improper billing, according to various media reports. "In a letter dated March 9, a Canadian official demanded that HP repay that amount by March 22 or provide proof that goods and services worth $120 million were delivered at proper billing rates. Canada claims that there is insufficient evidence that the charges were justified. In a statement, HP said it 'believes that there is no merit to the government's demands and intends to defend vigorously any claim, if brought,'" CNET's News.com reported. Bloomberg, citing a Toronto National Post article, said Canada's "defense department fired a civilian employee who oversaw the contracts. ... Hewlett-Packard said it dismissed a sales representative who worked with the employee and several of its Ottawa-based employees after its own investigation, the newspaper reported."
* Remember what it was like before the Internet existed? No, well, a lot of Department of Interior employees sure do. A federal judge ordered the agency to shut down Internet access and some of its Web sites because he "is not convinced the department has adequately secured electronic records of Native Americans' trust fund accounts," GovExec.com reported. "On Monday, U.S. District Judge Royce Lamberth ordered the department to cut off Web access for all workers except those at the National Park Service, the Office of Policy, Management and Budget, and the U.S. Geological Survey. Under the order, Interior can leave computer systems 'essential for protection against fires or other threats to life or property' connected," the article said. According to Federal Computer Week, Interior officials condemned the ruling in a statement: "'Going where no precious order has gone before, the court has rules, with very few exceptions, that the public's connection to the entire department via the Internet be shut down whether Indian trust data is available on those [Interior] systems or not,' the statement reads." The Washington Post covered the news too.
* Northrop Grumman has picked a seasoned tech executive, James R. O'Neill, to run its information technology unit. O'Neill, who will also be a corporate vice president for Northrop Grumman Corp., will be based in Herndon, Va. He succeeds Herb Anderson, who is retiring. Before O'Neill joined the company in 2002, he worked for Oracle, Lucent and Digital Equipment Corp., among other companies, Washington Technology reported.
E-mail government IT tips, comments and links to cindyDOTwebbATwashingtonpost.com
hoovers.com
steve |
