GRC International Banks on Success for Its Telecom Products


GRC International Banks on Success for Its Telecom Products

The Vienna, Va., company hopes to cash in on its strategic market switch soon

By Tania Anderson
Staff Writer

Five years ago, Jim Roth repositioned GRC International, Vienna, Va., away from its dominant business source defense contracts - and toward the telecommunications market. He is counting on that strategy to finally pay off as a new telecom product, as well as an older one, gain greater market acceptance as competition increases in the wake of telecommunications reform.

The 36-year-old systems integration company has had a bumpy ride in the last five years. As the company tried to rely less on defense-related work and build a commercial business, it experienced fluctuating revenues and a stock price that has dropped 79 percent since the end of 1995.

Jim Roth, GRCI president and chief executive

Roth, president and chief executive of GRCI, attributes the company's doldrums to a combination of factors, including product development costs and an accounting change that reflect on how the company reports revenues.

The company still competes with BDM, CACI,
Computer Sciences Corp. and Science Applications International Corp. That's because GRCI currently generates less than 10 percent of revenues from nongovernment contracts, said Roth.

Defense-related business from professional and technical services represented 94 percent of revenues in 1994, 96 percent in 1995 and 93 percent in 1996.

Linda Cohen, Gartner Group's systems integration analyst, said GRCI must make some acquisitions or broaden its internal expertise to speed up its emergence into the commercial sector.

"Most of their work has been as a subcontractor to larger primes," said Cohen. "The company needs to start targeting state-level contracts. The state market could be very lucrative for them."

In May 1992, Roth began putting in motion a new strategy to target the commercial sector. GRCI made its most important launch into the commercial world by partnering in February 1996 with Lucent Technologies of Murray Hill, N.J. The $26 billion developer of telecom systems and software was formerly the equipment arm of AT&T. GRCI signed a long-term agreement with Lucent to develop software to the company's specifications. The agreement allows Lucent's network equipment to handle more traffic at higher data rates.

According to Delitha Morrow Coles, a spokeswoman for Lucent, the company has been working with GRCI for over five years. "Speed and market demand count in our business," said Coles. "GRCI was able to deliver core competencies quicker than we were."

Roth thinks 1997 could be GRCI's glory year. He is relying on the expected success of two telecom prod-
ucts which he said were developed too early. This will be a significant shift for the company that has typically served as a subcontractor on service contracts for the Department of Defense.

Three years ago the company came out with the OSU Network Interface, which secures and manages data between senders and receivers on fiber optic-based networks. According to a financial statement filed in June 1996 with the Securities and Exchange Commission, OSU had sales of $1.5 million and a gross profit of $380,000. Roth said he expects to see better profits from the product this year.

"Our early estimates of how the market would take off within the first couple of years were ahead of time," said Roth. "The most recent surveys on our product show the market for the next couple of years is a few hundred units."

The company's second telecommunications product was released in October 1996. Network Vue, an integrated suite of tools for design and optimization of networks, was developed as both a software product and a service. According to financial statements, the product has brought in revenues of $460,000.

The company would not disclose how much the two products cost to develop, but according to financial statements, research and development costs rose from 1 percent in 1994 to 6 percent in 1995 and 15 percent in 1996. The statements said the significant increase in research and development is related to the development of its two products.

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