Integral Systems wins foot-in-the-door pact

USAF taps Md. firm to guide 28 satellites

March 16, 2002|By Robert Little | Robert Little,SUN STAFF

Integral Systems Inc., a dominant player in the niche business of building ground systems for commercial communications satellites, has won a $43 million contract with the Air Force that gives it a foothold in what could be a lucrative new military market.

The Lanham company will design and build the computer system that flies the Pentagon's communications satellites - monitoring their trajectories and orbits, and commanding them to move and spin.

Integral Systems will sustain the system through 2011, and the contract's value could rise to $118 million or more if the Air Force exercises various options.

The deal alone is a boon for Integral Systems, which employs roughly 260 people and whose annual revenue last year was $41 million.

But analysts say it could mean much more. By selecting Integral Systems' commercial-style control network rather than ordering a custom-built one, the Air Force is making one of its first strides into the "off-the-shelf" market that's Integral Systems specialty.

"This certainly is a nice door opener for them," said Richard A. Ryan, an analyst for Dougherty & Co. LLC, investment bankers. "It's significant on a couple of different levels, No. 1 being the competitive front."

In winning the contract, Integral Systems beat a team of large defense contractors that included TRW Inc., L3 Communications and Sun Microsystems Inc. In an earlier stage of competition, it beat Lockheed Martin Corp., Honeywell International and Raytheon Co.

Integral Systems, founded in 1982, developed one of the first computer systems that could control satellites using desktop computers instead of bulky mainframes.

The system, called EPOCH 2000, met with skepticism in 1992 when it was introduced and went unsold for several years, until Integral Systems built one free for AT&T Skynet.

Today, Integral Systems has half the commercial market and the EPOCH 2000 has flown satellites for such companies as Echo- Star Communications Corp., Alcatel, PanAmSat Corp., SES Americom and New Skies Satellites NV.

The Pentagon's 28 communications satellites are controlled by an aging mainframe computer and operated by the Air Force. Integral Systems will build and support a new system in Colorado, a job that will also keep 40 to 50 people employed at the company's Lanham headquarters.

Company officials hope to use the Air Force system to demonstrate that a commercial-style product, which is cheaper than a custom-built one, can handle the complexities of military operations.

"As big as that job is, it's just a small fraction of the total that the Air Force spends on ground-based infrastructure," said Steven R. Chamberlain, Integral Systems' chairman and chief executive officer. "If we do a good job here, we've got the potential to move into hundreds of millions of dollars worth of new business."

Integral Systems stock rose 40 cents to close at $22.38.

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