On the Move

THE YEAR 2003 was particularly momentous for one Washington-area technology contractor. In just 13 months, systems integration firm SI International Inc. went public, won a series of lucrative federal contracts and added one of the market's most seasoned players to its roster.

SI International, headquartered in Reston, Va., opened its doors in October 1998 as a technology services company, and has assembled a bevy of federal clients, including the State, Energy and Defense departments, as well as the Bureau of Prisons, the Drug Enforcement Administration and the FBI.

In December 2003, SI hired Paul Brubaker, one of the architects of the contemporary federal technology market, as its chief marketing officer. As a staffer to former Sen. William Cohen, R-Maine, Brubaker spearheaded a key 1996 law that helped set the stage for procurement reforms leading many tech-focused agencies to function more like businesses than bureaucracies.

Brubaker will "bring in a different level of marketing talent to penetrate a broader range of market opportunities," says Brad Antle, SI International's president and chief operating officer.

A sure sign of where SI thinks those opportunities are came with the announcement-two days after Brubaker's hiring-that the company would buy tech contractor Materials, Communication & Computers Inc. (Matcom) of Alexandria, Va. Matcom took control of the Thrift Savings Plan automated record-keeping system contract in July 2001 after the Federal Retirement Thrift Investment Board fired American Management Systems Inc., which spent four years and $50 million updating the system only to produce mostly failing results.

More evidence of SI's big 2003 push: On Sept. 11, the company announced that the State Department had raised the ceiling on its support contract with the National Visa Center, which processes all approved American visa petitions, by $28 million, to $88 million. In October, the company landed a supporting role in building the $281 million Defense Integrated Military Human Resources System, under primary contractor Northrop Grumman Corp. And in November, it won a slot on a $600 million U.S. Air Force contract helmed by Lockheed Martin Corp.

All that activity came on the heels of SI going public just over a year ago. On Nov. 12, 2002, the company launched an initial public stock offering of 4.35 million shares, priced at $14 apiece. By the end of 2003, the stock was trading at more than $20 per share.

Some analysts caution, however, that SI's dependence on government contracts could hinder growth. A review by investment banking group Stephens Inc., which holds a stake in the company, noted: "Government IT budget cutbacks, though unlikely, could have a significant negative impact on defense IT companies."

STOPPING SWAPPING

IN THE SIX MONTHS since the recording industry began filing federal lawsuits against online music swappers, the Internet has seen a dramatic dip in the numbers of Americans downloading and sharing song files, according to a new study.

Overall, the percentage of Americans who use the Internet to download music files fell by half since September 2003, when the Recording

Industry Association of America started its legal offensive on music listeners, alleging copyright infringement, according to the report released in January by the Pew Internet & American Life Project. Also, the number of people downloading files on any given day has "plunged," the report noted, and one-fifth of those who continued to download and share files said that fear of being sued compelled them to curb their habit.

The lawsuits "have been a watershed event in American culture," says Mary Madden, a research specialist at the Pew Internet Project who co-authored the study. "While some people may simply be less likely to admit to downloading now, we have never seen an Internet activity drop off this dramatically. . . . Something significant has happened."

Source: Pew Internet Project, comScore Media Metrix

IT'S SAID THAT a rising tide floats all boats. That axiom appears to be holding true in the federal technology market, where bigger revenues and profits are paying dividends for publicly traded federal technology contractors, according to a report released in December.

Valuation of shareholder-owned contractors' stocks increased 17 percent in the last six months of 2003, according to Reston, Va.-based Input, which conducts government market analysis for technology companies. Input studied the revenue and net income figures of 17 companies to come up with an overall stock value rating.

Based on the analysis, it appears at first glance that federal tech firms are outperforming the commercial market, says David Heinemann, an Input executive. The Standard & Poor's 500 Index has increased 11 percent since the end of May.

The technology component of the S&P 500, however, went up 24 percent during the same period, Heinemann notes. This indicates that values in the government technology market have not been increasing as fast as the technology sector overall, he explains, even though the firms Input studied are doing well.

Nevertheless, Heinemann is bullish on the federal market. Input's rivals, who also cater mostly to government contractor clients, have pointed to the recent uptick in technology spending and the increased pace of mergers and acquisitions as signals that the federal market is growing.