GRC Sees the Fiberoptic Light on the Info Highway

A Vienna, Va., defense contractor is banking on a potential $800 million market in optical networking technology, and has subcontracted to a manufacturer in Sterling, Va.

GRC International Inc. may have found a new calling The long-standing defense contractor has caught the ear of the telecommunications industry and brokerage firms with a new network transmission technology.

Since 1961, the Vienna, Va-based company has provided military and commercial customers with advanced systems and services including data processing, economic modeling, applied physics and systems integration. But like many members of the defense establishment, the company is trying to increase its private sector business. GRC's best hopes may lie in something known as the optical service unit network interface. The patented device was designed to manage and secure data between senders and receivers on fiberoptic synchronous optical networks. The OSU interface allows network managers to locate, diagnose and rectify network problems without interrupting the flow of data traffic in either direction. The interface can also be used as en electronic barrier or "firewall" against network intruders.

In late September, GRC announced the sale of 15 OSU interfaces to Bell Atlantic for the Advanced Technology Demonstration Network the Baby Bell is developing to link six federal agencies, including the Defense Information Systems Agency, the Advanced Research Projects Agency, the Defense Intelligence Agency, the National Security Agency, the Naval Research Laboratory and NASA.

And on November 3, GRC announced that Electronic Instrumentation and Technology Inc. of Sterling will manufacture the OSU to meet higher production volumes.

"The OSU interface represents an important breakthrough in SONET technology," said Jim Roth, president and CEO of GRC International. Roth said GRC believes the information highway will be built on SONET technology, adding that the company is already involved in "serious discussions" with other potential OSU customers.

The company obviously has high hopes for the OSU. But are they justified? Nancy Zambell, a research analyst with JW Charles Securities, estimated the potential OSU market between $400-$800 million annually, with a customer base including Baby Bells and long- distance carriers.

Analyst Paul Roukis of Value Line, said the OSU has "tremendous non-DoD potential."

If it lives up to its promise, the OSU will go a long way in breaking the company's dependence on military contracts, which currently account for 90 percent of its revenues. Indeed, if the $130 million company's five-year plan is successful, 25 percent of its revenues will stem from the private sector by 1998. More than one stock watcher is betting GRC can pull it off.

Thomas Meagher of Ehrenkrantz King Nussbaum Inc. said GRC's exceptionally high percentage of defense revenues is somewhat mitigated -- GRC's DoD profits are derived from research and analysis services far less susceptible to cuts.

"Unlike the more widely followed defense stocks which we believe largely incapable of being able to convert from defense production to commercial pursuits, GRC possesses the necessary skills and services to successfully penetrate non-traditional government and commercial markets," Meagher said.

Roukis said GRC's debt-free status will only aid its foray. However, GRC's push into the private sector is "a process that may well prove time consuming," he said.

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