CSC Gobbles Up Computer Contracts : Flair of Perot’s EDS May Be Lacking, but Firm Is ‘on a Tear’
Electronic Data Systems, personified by founder H. Ross Perot’s dash and legendary determination, is a well-known powerhouse in the booming $4-billion computer services business.
On the other hand, Computer Sciences Corp., headed by unassuming William Hoover, comes across as sort of a corporate milquetoast. “I’m not very good at talking about myself,” Hoover said.
So how is low-key CSC doing against its better-known rivals? “They are on a tear,” said Stephen T. McClellan, an analyst with Merrill Lynch. He noted that CSC has gotten three government contracts valued at $100 million or more this summer and is likely to win more so-called megacontracts by year’s end. “It’s terrific momentum,” McClellan said.
But it’s not clear whether the qualities that have helped El Segundo-based CSC in the past ensure an ever-improving future as it tries to expand its corporate business.
“They are not a controversial company with excessive flair--that conservatism helps them in the federal market,” McClellan said. But in the budding corporate market, he added, CSC’s low profile “hurts them because you have Fortune 500 companies that have never heard of CSC--a billion-dollar company. They have heard of IBM and of Arthur Andersen. They have heard of EDS because of Ross Perot.”
CSC also received some disappointing news this week when the federal government suspended a $3.6-billion contract to create a new air traffic control system. CSC, as a subcontractor to IBM, originally won a piece of that contract but the award is being reviewed because of a legal challenge by a competing bidder, Hughes Aircraft.
Even so, McClellan says that CSC and EDS, now a subsidiary of General Motors, are the two leaders in the fast-growing field of advising companies on how to best adapt computers to their operations. The growing corporate demand for such services will boost industry sales from about $4.2 billion last year to about $13.7 billion in 1992, according to industry estimates.
CSC has created computer systems that link companies’ far-flung headquarters, sales offices and factories. For the government, which still accounts for 70% of CSC’s revenue, the company processes test-flight information and operates computer equipment at Edwards Air Force Base, among other things.
Recently, it won a $500-million contract to process information gathered by U.S. weather satellites; a $1-billion contract for engineering and analytical services at NASA’s Goddard Space Center, and a $300-million program to upgrade the Air Force’s military command system.
The company’s work is highly regarded in the industry--even by competitors. “It’s one of the great pioneers of the computer service industry,” said Perot from his offices in Dallas. During the ‘70s, Perot said, “I had an opportunity to buy 25% of it. Bill Hoover asked me not to do it. It would have been a good investment.”
Revenue surged to nearly $1.2 billion during the fiscal year that ended April 1, up from $838.6 million two years earlier. Profits over the same period climbed to $43.5 million, from $23.9 million.
That growth is a dramatic change for a 30-year-old company that floundered in the early 1980s. Back then, Hoover said, the company was shifting away from what was once its primary business--allowing clients to use CSC computers for a fee. That market eventually was crushed by the advent of the personal computer.
So the company went after the huge contracts being awarded to computerize the federal government. That strategy has turned out to be extremely successful for CSC, but it still has a big drawback: Government contracts often run into snags, as the company found out with its air traffic system contract.
In another case, the General Services Administration, saying it needed more time to evaluate bids, postponed awarding contracts until the end of the year on the $25-billion project to overhaul the federal government’s telephone network. CSC has teamed with AT&T; and Boeing Co. to bid on the federal project, one of the largest telecommunications ventures ever proposed.
Although the federal market will be the source of many more major computer contracts in the next few years, analysts fear that tighter federal budgets and a slowdown in defense spending will hurt the longer-term prospects for companies such as CSC. “The question with the Department of Defense is how many of them (contracts of $100 million and more) will be sidetracked,” said David A. Henwood, an analyst with Raymond James & Associates, a St. Petersburg, Fla., brokerage house.
Concerns about a slowdown in defense spending and CSC reliance on the government for business also have investors worried, Henwood said, citing the company’s relatively low stock price despite impressive gains in profit. “We think it is very much a company that could be a takeover target,” Henwood said. “Certainly, other companies that have less technical and systems capability than CSC have already been taken over.”
Hoover is less concerned. He sees business opportunities in efforts by the federal government to boost the productivity of its workers and in plans by the military to tie together the military hardware it has accumulated in recent years.
Computer Sciences, however, has made no secret about its plans to court the fast-growing and highly profitable corporate market. The company has spent $70 million in the past two years acquiring firms with expertise in such fields as the retailing industry. And recently, the company unveiled a new corporate logo to help heighten its profile in the industry.
A push to boost corporate productivity and the emergence of a growing number of far-flung multinational companies “requires computers to be highly integrated into the organization,” Hoover said. “I think technology is growing at a rate that will allow us to gather and process information from a global standpoint. That is the challenge of the ‘90s.”
“It is a good strategy,” McClellan said. “I think that it is going to be a huge market. But it remains to be seen whether they can execute their plans. It hasn’t happened yet and EDS is already in that market. They are going to need a certain degree of aggressiveness and considerably more marketing thrust.”
Yet nobody expects CSC to adopt a flashy style anytime soon. The company and its 18,300 workers take their cues from Hoover’s low-key style: “People always try to get me to smile,” said Hoover, obviously ill at ease while posing for a recent photograph. “I’m not very good at it.”
COMPUTER SCIENCES AT A GLANCE A major computer services company in El Segundo that designs, installs and operates computer and communications systems and equipment primarily for government agencies.
Year ended April 1 1988 1987 1986 Sales (billions) $1.152 $1.031 $0.839 Net income (millions) 43.5 32.2 23.9
Assets $661 million Employees 18,300 Shares outstanding 15.6 million 12-month price range $38-$73 Friday close (NYSE) $45.125, up $0.125
