INS Win Reinforces Wang Turnaround
INS Win Reinforces Wang Turnaround
By Nick Wakeman
A half-billion dollar contract win with the Immigration and Naturalization Service is more than just a revenue boost for Wang Government Systems, McLean, Va.
It is a thumbs up for the former hardware manufacturer's strategy to remake itself into a services provider, company officials and analysts said.
Wang is the sole winner of the five-year, $538 million, indefinite-delivery, indefinite-quantity contract that includes round-the-clock management of more than 24,000 desktop computers in 750 national and international locations.
"It is a tremendous vote of confidence because it is one of the biggest contracts in that space awarded this year," said James Hogan, president of Wang Government Systems, a division of Wang Laboratories, Billerica, Mass.
The INS win could add more than $100 million a year to the division's $400 million annual revenue, he said. Overall company revenues have grown from $846 million in 1994 to $1.3 billion in 1997.
"The INS win shows that the company they've built can win and execute," said Thomas Browne, an analyst with Prudential Securities Research, New York.
But Wang's makeover is still not complete, said Hogan. With $200 million of the INS contract open to other government agencies looking for desktop services, Wang wants to parlay the win into more government outsourcing work, he said.
And since Wang is flush with cash, more acquisitions of companies with outsourcing and networking capabilities are part of Wang's growth strategy, Hogan said. In the last five years, the company has dumped its manufacturing capabilities and made several acquisitions to boost its services offerings.
The INS win reinforces the course the company charted for itself five years ago, Hogan said.
Some analysts agreed but said the company needs to go even further.
"Wang's capabilities are excellent, but they need to build more referenceable accounts," Browne said.
The company has done "quite well" in the markets it is pursuing, said Pat Burton, an analyst with Lehman Brothers, New York. "They have really developed a nice suite of services," he said.
Wang focuses on three primary markets - outsourcing desktop services, network integration and multivendor services, Hogan said. "That is our business, and the INS win is right down that alley," he said.
|NETWORKING AND OUTSOURCING ACQUISITIONS BY WANG|
- January 1995: Non-European operations of The Groupe Bull, France, included Honeywell Federal Systems Integrators, McLean, Va.
- October 1995: BISS Ltd., United Kingdom
- May 1996: DataServ, Minneapolis, Minn.
- August 1996: I-Net Inc., Bethesda, Md.
- October 1996: Advanced Paradigm Inc., Alexandria, Va.
The INS complements other contract wins this year including the Navy's Voice, Video and Data Infrastructure contract with Lucent Technologies, the Defense Intelligence Agency's Systems Acquisitions and Support Services II contract as the prime and the Federal Aviation Administration's National Airspace System Infrastructure Management System with Hughes Information Technology Systems.
Part of Wang's rebuilding included acquisitions to establish a presence in the networking and outsourcing markets. Over the last four years, Wang has purchased the non-European operations of The Groupe Bull, based in France, which included Honeywell Federal Systems Integrators; DataServ Inc., a Minneapolis-based multivendor service provider; and I-Net Inc., Bethesda, Md., a network services provider.
Acquisitions are still part of the company's growth strategy but "we don't comment on them," Hogan said. But the company is in a strong financial position to make more buys.
Wang sold its software imaging business to Kodak in March for $260 million. "The company is lucky enough to have most of that in the bank, and we have no long-term debt," Hogan said. Wang also has a $225 million line of credit. "So we are poised financially to do other things."
|Major Wang Contracts|
- Immigration and Naturalization Service Facilities Operations and Hardware
- Maintenance Support
- Defense Intelligence Agency Systems Acquisitions and Support Services II
- Pension Benefits Guaranty Corp. outsourcing services
- Navy's Voice, Video and Data Infrastructure contract (subcontractor to Lucent Technologies)
- Federal Aviation Administration's National Airspace System Infrastructure Management system contract (subcontractor to Hughes Information Technology Systems)
Despite successes like the INS win, Wang's makeover is not complete, Hogan said. Wang has reached a comfort level with the markets it is playing in, but "we need to continue to focus on shoring up our position," Hogan said.
Wang is competing with a range of companies for contracts, but Wang "can differentiate their skill set well," Burton said. "I recommend the stock."
"We were fortunate enough to pick the right [markets] at the right time," Hogan said. The markets for outsourcing and networking are growing at more than 20 percent a year, and multivendor services are growing at 8 percent to 9 percent.
"Outsourcing is something that is coming on very strong in the federal marketplace," Hogan said. "INS isn't calling its contract outsourcing but what they are actually doing is outsourcing their desktops."
Wang also is in the running for the General Services Administration's Seat Management project, which will be a large, multiwinner outsourcing contract, he said. Market research firm Input, Vienna, Va., estimates that contract to be worth $9 billion. The request for proposals was issued in early October.
Hogan said he also sees opportunities for Wang to win operational outsourcing contracts. The company currently has the contract to manage the billing process for the Pension Benefit Guaranty Corp., a government entity that guarantees pension benefits. Future opportunities that would entice Wang are tax modernization proposals that call for privatizing some tax collection functions, he said. "There are going to be tremendous opportunities," he said.
"The government is doing the same thing that the commercial people are doing," Hogan said. "They are asking, 'What business am I in? I'm in the insurance business or the government business. I'm not in the business of maintaining computers.'"
The INS win will help Wang get into other agencies because $200 million of the $539 million ceiling is earmarked for use outside the INS. "We can market that to other agencies so that gives us a lot of other opportunities, Hogan said.
Along with the INS, Wang also has a strong customer base with the State Department, Postal Service, NASA and the Air Force.
"What has helped us is the appreciation that to win, you need an excellent knowledge of the customer," he said.