- The Washington Times - Monday, June 6, 2005

Integral Systems Inc. is growing accustomed to beating its bigger rivals around the Beltway, recently winning a $123 million Air Force contract that will keep the company busy for at least five years.

The Lanham contractor, whose 380 employees develop software that controls satellites, has competed successfully for contracts against industry giants including Lockheed Martin Corp. and Raytheon Co.

Integral Systems says its software can be used off the shelf to operate nearly all satellites, while its competitors must custom design software for each one.

Its software and hardware “together will fly just about any satellite system in the world right out of the box,” said Steve Chamberlain, Integral Systems’ chief executive officer. “We don’t custom build anything. We have a tremendous advantage in terms of our cost.”

The company’s systems control more than 200 satellites for customers on five continents. The company also provides satellite integration, test and payload-processing services.

“They can deliver on time and under budget — something their competitors have yet to consistently do,” said Dick Ryan, a research analyst for financial services firm Feltl & Co. in Minneapolis.

Integral Systems reported that net income for its second quarter ended March 31 rose 15 percent to $2 million (20 cents per diluted share) from $1.8 million (18 cents) for the like period a year ago. Revenue rose to $23.3 million from $22.5 million a year earlier.

Its stock, which trades on the Nasdaq Stock Market under the symbol ISYS, rose 15 cents yesterday to close at $23.11 a share.

Integral Systems expects revenue to grow more quickly as it moves into full production on the Air Force’s Rapid Attack Identification Detection Reporting System, which will be used to detect jamming of U.S. military and commercial satellites.

“There are going to be some very profitable quarters ahead for them,” Mr. Ryan said.

However, as a relatively small company competing against well-financed and bigger defense contractors, Integral Systems might be challenged to maintain its rate of growth, he said.

“It’s a relatively small company having its business model dominated by major projects,” Mr. Ryan said. “With these large military contracts, they tend to come in stages. You see a spike when these types of contracts come through, then you see a plateau when the spending levels off.”

Since its founding in 1982, Integral Systems has gained more than 60 percent of the market for commercial satellite command-and-control systems.

In its early years, the company focused on communications, science and meteorological satellites with its EPOCH Integrated Product Suite software. Integral Systems’ relatively small size was a handicap in competition for defense contracts.

Its breakthrough came with a $118 million contract it won in 2002 to consolidate Air Force satellite communications into a single system. Integral Systems replaced older IBM mainframe computer functions with personal computers and its EPOCH software.

“We were such a small business that I think the Air Force didn’t think we were really qualified,” Mr. Chamberlain said.

Other bidders included Boeing, Honeywell, Raytheon and Lockheed Martin.

“We won and that shocked people,” Mr. Chamberlain said. “This little tiny company in Maryland came in from left field and kicked all the big guys out of the field.”

Mr. Chamberlain said his company still encounters “political” protectionism that favors other contractors in competitive bidding.

“Quite often there is a senator who wants to protect jobs in their state or district,” he said. “They’ll say, ‘Keep this with the old guys, don’t put it out to bid.’”

The contract announced in February to detect illegal jamming was the biggest in the company’s history and positions Integral Systems as a viable competitor for other defense work among the industry’s titans.

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