Eyeing the civilian life

Defense heavyweight General Dynamics sees opportunities for network systems

Dan Allen

General Dynamics Corp.'s aggressive moves to position itself as an information technology provider to the Defense Department are well known. But the company also has been quietly working to win more business with civilian agencies, especially by leveraging its engineering and network talents developed for defense customers.

The company sees itself as poised to take advantage of the government's post-Sept. 11 requirements, especially the agencies' need for secure IT infrastructures.

"The concept of a common architecture [and] standardization is something that we truly support. It's something that we've done over the years [in building] large systems," said Dan Allen, vice president and general manager of General Dynamics Network Systems.

Much of the impetus for the company's pursuit of federal contracts outside its traditional defense base comes from the 1999 purchase of three units of GTE Corp.'s government systems organization for $1.05 billion. The units became three of the five companies that make up General Dynamic's Information Systems & Technology sector.

"General Dynamics did not get these ... companies to get more of a focus on the [civilian agency] market," said company spokeswoman Jill Reilly. The company acquired the businesses to bring more integration to its existing platform businesses, she said. The ability to expand into new civilian markets is simply an added bonus.

IS&T's revenue reached $2.8 billion in fiscal 2001, up from $2.1 billion in 2000 and comprises about 23 percent of General Dynamic's $12.2 billion in sales.

One of the GTE units, previously known as Worldwide Telecommunications Services, became the Network Systems division now managed by Allen.

"As part of GTE we were really focused on the federal market, the Defense Department, particularly telephony," Allen said. "Over the past four years we've expanded into a much broader scope, [such as] networks and tactical communications systems."

Network Systems' budding success has, for the most part, been ignored by Wall Street analysts and others who watch the company, said Tom Meagher, first vice president, BB&T Capital Markets, Richmond, Va.

"The civilian agencies part of the business is not something Wall Street has ever focused on," Meagher said. "Having said that, IS&T is going to be the growth side of the business. I think it was a shrewd move on their part to get into that."

Allen said his part of the company is working to expand its infrastructure build-out activities, what he calls "the core network components that allow networks," such as voice systems, PBX systems, large circuit systems and network management systems.

Ray Bjorklund a vice president of consulting with Federal Sources Inc., a McLean, Va., market research firm, said General Dynamics is beginning to make some headway in federal civilian agencies.

General Dynamics is in a position where it can not only provide "last mile" services, the connection from the outside telephone line into the building, Bjorklund said, but all the inside-the-plant work, too.

The company's strengths are going to be in infrastructure and support services. "They're certainly capable of higher added-value types of IT infrastructure work. They're capable of doing the engineering work at the front end, all the way through to day-to-day maintenance of LANs," Bjorklund said.

The combination of General Dynamics' historic strength in defense engineering, combined with GTE's telecom expertise, is beginning to show its potency, he said.

"If you look at the historical legacy of GTE, you'd think telecom, but think too of the very sophisticated engineering they've done for the defense department," Bjorklund said. "Applying that to civilian agencies should be a very significant point of leverage for them."

General Dynamics is the current contract holder for the General Services Administration's Wireless and Cable Services (WACS) contract, a $2.6 billion program. General Dynamics also holds a spot on the National Institutes of Health's Chief Information Officers Solutions and Partners II contract, as well as contracts with the Agency for International Development, the Surpreme Court and the Federal Aviation Administration.

The WACS contract was actually won by GTE, and it's scheduled to expire in December. The company is bidding for a spot on GSA's Connections contract, an eight-year, multibillion-dollar indefinite delivery/indefinite quantity telecommunications products and services program that will include multiple vendors.

In addition to Connections, General Dynamics Network Services is pursuing the FAA's $15 million Voice Telecommunications Systems contract, Allen said. An award is due for announcement some time this summer.

The company also is looking to carve out opportunities with the new Transportation Security Administration, he said.

BB&T's Meagher said that developments in the federal space may play into General Dynamics' strengthened capabilities. "There are a lot of outdated systems in the civilian agencies," he said.

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