No. 5: CSC holds a lure for a buyer

Despite for-sale rumors, systems integrator carries on with strong federal wins

Computer Sciences Corp.

Prime IT contracting revenue: $2.8 billion

Location: El Segundo, Calif.

Leaders: Van Honeycutt, chairman and CEO; Michael Laphen, president and COO

Employees: 80,000

URL: www.csc.com

2005 revenue: $14.1 billion

2005 net earnings: $810.2 million

2004 revenue: $13.4 billion

2004 net earnings: $519.4 million

James Sheaffer, president of CSC's federal sector, said rumors of the firm's sale haven't hurt business.

Rick Steele

Computer Sciences Corp.'s solid slate of lucrative, long-term, federal IT contracts is among the lures for potential buyers of the integrator. The company has been courted in recent months by an array of suitors, including Hewlett-Packard Co., Lockheed Martin Corp. and a number of private equity firms, and has retained Goldman Sachs to explore its potential sale.

But the uncertainty as to CSC's future ownership hasn't slowed contracting activity for the unit, said James Sheaffer, who in December became president of its federal sector. CSC ranks at No. 5 on this year's Top 100 list, with $2.8 billion in prime contracting revenue. The company has been in the top five of the list since it began in 1994.

The possible sale "is not affecting our performance at all," Sheaffer said. "I don't believe we've lost any deals because of this announcement or any of the previous speculation. We just view it as business as usual from an operational perspective."

The government unit also is unaffected by a restructuring intended to trim more than 5,000 jobs, mostly in Europe, in part to make CSC a more attractive buy.

Overall, CSC does more than $4.5 billion in business each year with the federal government, providing a broad range of services, from front-end strategy work and business operations support to traditional IT design, development, implementation and support.

"For large outsourcing or infrastructure-type projects, they are on the short list," said Bob Kipps, an analyst with Houlihan Lokey Howard & Zukin of McLean, Va. Given the increasing size of these projects, "there are only so many people you can go to for tier-one-type of outsourcing contracts."

"We're well-positioned in the market now," Sheaffer said. "I believe we're really aligned in the short term with the budget priorities in the president's budget submission. We have a lot of strength in the areas that represent growth in technology."

Sheaffer said CSC's core competencies are services in specialized engineering, IT and business operations. His focus now is positioning the unit for the long term, aligning with trends such as the aging federal workforce, increases in spending on health care and security, and enterprise solutions.

In addition to guiding internal development, CSC's approach could entail small acquisitions as well as partnering and alliances to complement its skills, Sheaffer said.

Acquisitions have fueled CSC's growth before. Kipps said the acquisition limbo is standing in the way of that strategy in the short term.

"The business continues, in my mind, to struggle with finding organic growth," he said. "At this point, they're not likely to be an acquirer, because there are too many moving parts."

About 54 percent of CSC's federal business comes from the Defense Department, and the rest from civilian agencies.

"One thing that makes CSC different from some others in the federal market is that, although our history is as a federal contractor going back 45 years, today two-thirds of the business CSC executes is commercial," Sheaffer said. "There is a huge base of experience in the commercial business, a lot of it around outsourcing and infrastructure support."

CSC is focusing on transforming those skills to suit the way the federal government buys and uses technology. One example is the $230 million NASA contract it won in May 2005 for a shared-services center at the Stennis Space Center in Mississippi. There, CSC will consolidate 10 NASA Service Centers into one.

An important health care win was the eight-year, $384 million Prescription Drug Benefit contract, awarded in September 2005 by the Center for Medicare and Medicaid Services, to establish one of 10 national prescription drug benefit plans. CSC is one of the contractors on the project.

In homeland security and other security markets, CSC will be avoiding the "me-too" trap by focusing on opportunities in identity management, credentialing, registration and verification.

CSC developed an identification system to secure military facilities in Iraq via multiple biometric identifiers, including iris and fingerprint, and it supports the State Department in processing visas for entry into the United States. Cybersecurity is another focus.

In enterprise solutions, CSC will play heavily in enterprise resource planning, outsourcing and infrastructure markets. In May 2005, CSC announced a $176 million contract to provide IP infrastructure services to the Education Department.

"That's important for us, because it lets us bring a lot of IT infrastructure expertise into the market," Sheaffer said.

CSC is also closely watching the wireless communications and support market, and is competing for the Integrated Wireless Network contract to build a communications network for 80,000 federal agents.

Modeling and simulation is another focus of investment and capability development; CSC set up and built the Flight School XXI facility in which the Army trains helicopter pilots.

Among CSC's 2005 disappointments were losing, despite its strength in ERP and enterprise transformation, on the General Fund Enterprise Business System for the Army and the Defense Enterprise Accounting and Management System for the Air Force.

"The overall theme for government is figuring out how to do more with less," Sheaffer said. "We have a tremendous amount of experience corporately ? that we can bring to bear on that particular issue."

CSC's willingness to take on tough jobs adds to its strength, he said.

"I really believe we're extremely well positioned for future success in the market," Sheaffer said.

Additional 2006 Top 100 Profiles
  • No. 1: 12 times the fun for Lockheed

  • No. 2: Northrop takes aim on health IT

  • No. 3: SAIC prepares for public debut

  • No. 4: Revving the acquisition engine

  • No. 5: CSC holds a lure for a buyer

  • No. 6: Raytheon works the system

  • No. 7: L-3 cuts bigger slice of govt pie

  • No. 8: For EDS, steady as she goes

  • No. 9: Booz Allen adapts to stay on top

  • No. 10: Dell solutions get superpowered

  • No. 11: BAE keeps acquisition fires burning

  • No. 12: Despite sale, Anteon's vision lives on

  • No. 13: Intelligence work fuels CACI's growth

  • No. 14: Verizon-MCI combination packs a punch

  • No. 15: Restructured IDS lets Boeing help clients

  • No. 16: ITT Industries aims for the sweet spot

  • No. 17: IBM Corp. steps up as a subcontractor

  • No. 18: Sprint Nextel goes for convergence

  • No. 19: For SRA, the profit is in its people

  • No. 20: It's always mission possible for Unisys

  • Overview: The Billion-Dollar Club

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