Intergraph Expects To Step Into the Black

By Richard McCaffery, Staff WriterIntergraph Corp. should step out of the red this year following a restructuring of the hardware, software and services company, and a legal decision that could boost its position in the workstation market, company officials said.James Meadlock, Intergraph's chairman and chief executive, said the Huntsville, Ala., company would likely turn a profit in the second quarter. "We expect a loss the first quarter, but not after that," he said.His optimism comes in spite of an ongoing legal wrangle with chip giant Intel Corp.Intergraph, which has lost $274 million over the last five years and has not had a profitable year since 1992, could use a break. A recent government win should help. Intergraph was one of 15 companies to snare a spot on a contract worth up to $600 million with the National Imagery and Mapping Agency. Under the five-year deal awarded in January, Intergraph Mapping and Information Systems will provide the agency with mapping, charting, imagery intelligence and related services."It was right in our core business area," said Penman Gilliam, corporate executive vice president and general manager of Intergraph Mapping and Information Systems. Gilliam expects to get a sizable piece of the $600 million award. "It was a significant contract, one we needed to win," he said. Neal Johnson, an analyst at Robinson-Humphrey Co. in Atlanta, said 1999 could be the swing year for Intergraph."They're probably in the best position to achieve [profitability] that they've been in going back a number of years," he said. The company completed a restructuring in January, dividing its business into four separate units: Intergraph Computer Systems, Intergraph Public Safety Inc., VeriBest Inc., and Software and Federal Systems. Last November, it sold its hardware manufacturing inventory and assets to SCI Technology Inc., a subsidiary of SCI Systems Inc., Huntsville. That generated $62 million, with the proceeds used to pay down debt.Johnson believes the company will sneak into the black as a result of restructuring, the sale of its manufacturing assets and the preliminary injunction issued by a Alabama federal judge. He said Intergraph now must prove it can perform. "Clearly, the street is looking for them to execute and reach profitability," he said. Analysts polled by Zacks Investment Research Inc. of Chicago expect Intergraph to achieve modest profitability in 1999 — earnings of 5 cents a share. Intergraph's legal battle with Intel goes back more than two years. In November 1997, Intergraph filed suit in an Alabama federal court charging Intel with illegal coercive behavior, patent infringement and antitrust violations. Intel claims all the charges are without merit. The case is set for trial next February.But a preliminary injunction issued by the Alabama federal judge in April 1998, and a March settlement related to a case brought against Intel by the Federal Trade Commission, has buoyed the hopes of Intergraph officials. The injunction and the settlement require Intel to provide Intergraph with information and products to build its workstations. Intel has appealed the Alabama judge's ruling to the Federal Court of Appeals in Washington, and is awaiting a decision, said Intel spokesman Chuck Mulloy. Intergraph officials are ready to get the matter settled. "We've been through two years of hell here...," said Meadlock, who along with his wife Nancy and two business partners founded Intergraph Corp. almost 30 years ago. Intergraph is seeking unspecified compensation for damages it claims were caused by Intel.Intergraph officials said the rift with Intel, whose chips the company uses to build its workstations, left it unable to deliver its new workstations as fast as competitors and led to lost market share. Intergraph competes with Hewlett-Packard, IBM, Sun Microsystems and many other well-heeled technology companies. Intergraph's business is focused in two areas: supplying workstations and servers and developing technical software applications such as geographic information systems. It also offers IT consulting, engineering and integration services. Since 1996, the company has put more focus on services as hardware margins shrank, though hardware sales still comprise 70 percent of revenues.Gilliam's IMIS is one of two divisions that make up the bulk of Intergraph Federal Systems, the company's government unit and part of its Software and Federal Systems division. IMIS focuses on mapping software and services for NIMA, intelligence agencies and the U.S. Geological Survey.The other major federal unit, the Government Solutions division, based in Huntsville, focuses mainly on services and products in the logistics area for customers such as the Army, Navy and Defense Information Systems Agency. The bulk of Intergraph's federal business is with the Defense Department. Overall, Intergraph had $1 billion in 1998 sales, down 8 percent from the year before. The company cut its net losses to $19.6 million last year, compared with a $70 million loss the year before. Intergraph's total government revenue slipped to $166 million in 1998, down from $177 million in 1997. Though sales of products such as workstations have tapered off, Intergraph's main government business has increased, officials said. IMIS is growing 6 percent to 10 percent annually, said Gilliam, who expects to hit $70 million in 1999 sales.Jim Slate, vice president of the Government Solutions Group, said his division is growing 30 percent to 40 percent annually, driven by the government's need for engineering, consulting and support services. He expects to reach $75 million in 1999 sales, up from $20 million in 1996 when the company first started pushing services. "The services component of federal has been growing at a pretty good clip," he said. This year, Slate is focused on bringing the company's services and new workstation systems to defense agencies. Services include legacy systems integration, knowledge management, engineering, consulting and back end support.In addition, the company is looking to develop partnerships with vendors and systems integrators. On May 3, Intergraph announced a partnership with Litton-PRC, a division of Litton Industries Inc. of Woodland Hills, Calif. The two are jointly developing a decision support system to integrate weather data and geographic information systems.