- The Washington Times - Tuesday, March 11, 2003

Shares of GTSI Corp. fell more than 30 percent yesterday after the company said it would report a loss for the first quarter of this year.
Chantilly-based GTSI, which provides information-technology products and services to the U.S. government, said a delay in passing the budget that funds most government agencies led to a decrease in spending by many of its customers.
GTSI shares fell $2.50, or about 30 percent, to close at $5.70 on the New York Stock Exchange yesterday. GTSI's shares have fallen more than 60 percent this year.
Analysts said GTSI lost as much as 40 percent of its revenue base during the first six weeks of 2003, as Congress waited until Feb. 13 to pass the $397 billion Federal Civilian Agency Budget. The budget funds all government agencies except the Department of Defense and had been held up in Congress since October. GTSI gets about 93 percent of its revenue from the federal government; about half of that comes from the Pentagon.
On top of the budget delay, many agencies, including the Pentagon, have diverted some spending in anticipation of war with Iraq. Uncertainty about the potential for war and its length has caused some agencies to hold on to their money, analysts said.
"Agencies typically are going to hold back. … Some may not know what they're going to do with it in the future," said Brian Kinstingler, an analyst with Sidoti and Co. in New York.
Mr. Kinstingler said he is predicting a loss of about 16 cents for the first quarter of 2003. But he said things will get better as the year progresses. Both he and the company have predicted a profit for GTSI by year's end, with a large amount of business coming after the summer.
Historically, GTSI has earned the bulk of its revenue in the last two quarters of the year, because agencies hold off spending until technology needs become clear. Also, agencies spend more toward the end of the year because government funding does not carry over.
"Whatever's left at the end of September, [the agencies] need to spend," Mr. Kinstingler said.
GTSI reported net income of $9.5 million last year. About $5.1 million of that came in the final quarter. The company made $541,000 in the first quarter of 2002.
GTSI said it is confident that the recent drop in government spending on information technology is temporary.
"We believe that the government will continue to increase IT spending in 2003 and beyond," said GTSI Chairman and Chief Executive Dendy Young. "We continue to see positive, long-term indicators for our industry and our business."
Mr. Kinstingler said he expects GTSI's stock price to rebound to about $11 per share. He said the company has cornered the government IT market and does not face particularly stiff competition.
Furthermore, information-technology budgets for government agencies have been growing. The 2003 budget includes a 10 percent increase in funding for information technology, and President Bush's proposed 2004 budget calls for an additional 14 percent increase. The creation of the Homeland Security Department could create more revenue opportunities for GTSI as the new department attempts to link technology systems of local government agencies.

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