Defense Software Companies Look Election-proof
BY Joel Kotkin
With the Democrats pledging to eliminate "big-ticket" defense-budget items, many defense contractors have reason to hope that President Reagan and the Republicans will win in November. But whoever wins, the prospects look bright for the handful of smaller software companies that try to make weapons work smarter.
"The things that the Democrats want to cut, like the MX, are much more expensive than things like electronic warfare, which is where most of the new companies are," maintains William Perry, former Undersecretary of Defense during the Carter Administration and now a managing director for technology at the San Francisco investment firm of Hambrecht & Quist Inc. "There would be strong support for electronic warfare under the Democrats because it gives you high value for relatively few dollars."
Already a $36-billion industry, defense electronics will grow at a 15% annual rate for the duration of the decade, breaking the $100-billion mark by 1990, according to Bob Hanisee, an analyst for Los Angeles-based Seidler Amdec Securities Inc. The electronics portion of the defense budget is expected to increase, Hanisee claims, from 32.7% last year to some 40% by decade's end.
These rosy prospects are already providing the long-term growth potential for a whole new set of young growth companies. Comptek Research Inc., a 16-year-old company in Buffalo, is one example. It has built its revenues from $16 million to $21 million in the past year, says president William K. LaSala, by specializing in providing software for new electronic warfare systems for ships and aircraft, such as digital simulation of radar. Tiburon Systems Inc., of San Jose, Calif., which has grown from $1.5 million to $5.1 million since 1982, develops tactical software systems for the military. One key product is a database management system used by tactical officers on ships or shore sites. Aquidneck Data Corp. of Middletown, R.I., concentrates on contract work for the Newport, R.I.-based Naval Underwater Systems Center, and for Raytheon and IBM.
Currently, Aquidneck is working on replacing magnetic disks with laser disks in combat systems, although the company can't get much more specific than that because of security concerns. Aquidneck has grown from $1 million in 1978 to $8.7 million last year.
Small, nimble software and hardware companies have an advantage in the rapidly changing U.S. weapons field, where the general strategy is to use technological superiority to outweigh the numerical advantage of Soviet bloc weaponry. That strategy makes it crucial to stay a step ahead of the competition. Advanced Countermeasure Systems, for instance, got a contract to build a threat simulator that replicates Soviet radar jammers. "In a Fortune 500 environment, it would take two years to develop," explains Bob Campbell, president of the Cupertino, Calif.-based company. "We could do it in eight or nine months. A lot of that is the efficiency of our size. We can make decisions quickly. We don't have time for internal arguments."