Execs: Government not shying away from tech innovation

Anne Altman of IBM Corp.: "There is much greater interest in government and industry for technology innovation."

The federal government is showing greater willingness to consider cutting-edge technologies to improve homeland security, according to industry executives.

"Post 9-11, agencies are looking for emerging technologies" that can help agencies collect and share information, said Anne Altman, managing director of U.S. Federal Government for IBM Corp., Armonk, N.Y.

As an example of new technology, Altman cited grid computing, which can link computers together to create a supercomputer capable of processing information and data at enormous speeds. "There is much greater interest in government and industry for technology innovation," she said.

Government agencies traditionally adopt more stable and mature information technology solutions, allowing the private sector to pioneer technology and work out the bugs. But the terrorist threat has made federal officials more open to promising new technologies, said James Kane, president and chief executive officer of Federal Sources Inc., a McLean, Va., research and consulting firm.

"The government is more willing to consider risky projects," Kane said.

Altman and Kane spoke March 14 in New York at a conference bringing together Wall Street analysts and executives from some of the top IT companies in the government market. For the most part, speakers presented a rosy view of this market.

Analysts noted the Bush administration's request for $52 billion in fiscal 2003, a 15 percent increase over its initial request of $45 billion for 2002. Moreover, Kane said the government's intelligence spending could include billions of dollars in additional IT spending.

And while it is uncertain just how long the government IT boom will last, sustained funding should continue for at least three to four years, said Kevin Plexico, an executive vice president with research and consulting firm Input, Chantilly, Va.

This has translated into exceptionally strong performances in the stock prices of IT companies with a dominant government presence, said William Loomis, managing director at Legg Mason Wood Walker Inc., Baltimore.

"Wall Street pays up for consistency; Wall Street pays for visibility," Loomis said.

Kane and Plexico also expected government outsourcing to grow, due in large part to an aging federal work force that soon will retire in large numbers.

This point was emphasized by Ed Meagher, deputy chief information officer for Veterans Affairs: "Government has been in a hiring freeze since about 1990. We don't have a choice about outsourcing. We can't do this alone."

At least one analyst, however, worried that the government market may not sustain the momentum. Andrew Paremtier, an associate economist and policy analyst with Friedman, Billings, Ramsey & Co. Inc., said enthusiasm for military and homeland defense spending may wane in the coming months, while states are experiencing budget shortfalls that could cut into IT spending.

The market outlook conference was designed in part to help the investment community understand the government IT market, said Harris Miller, president of the Information Technology Association of American, Arlington, Va., which sponsored the half-day gathering.

The government IT market may seem boring to some analysts, "but as a long-term investment, it's the place to be," Miller said.

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