by Richard Pettibone, Aerospace & Defense Companies Analyst, Forecast International.
As a firm that derives almost all of its revenues from U.S. federal markets, Science Applications International Corporation has been acutely aware of the ongoing slowdown in spending.
Partially in response to this decline, SAIC was split in 2013 into two “new” companies, SAIC and Leidos. According to reports, the decision to split freed the high-margin science and technology business and the lower-margin IT and technical services business from organizational conflicts of interest (OCI) restrictions, particularly for the government services business. In broad terms, SAIC focuses on services and Leidos concentrates on information technology, especially in the health technology and national security domains.
Unencumbered by OCI concerns, both businesses will be able to pursue more opportunities and a broader customer base. The two businesses also will be structured differently – particularly Leidos – so that they can be more competitive.
Formed from the technical, engineering, and enterprise IT service businesses of the old SAIC – areas that have suffered of late, the new firm derives over 97 percent of its revenue from the U.S. government. But now that is changing. The combination of stabilized federal spending, positive growth prospects, and a successful merger and acquisition environment is boding well for SAIC and the government services industry as a whole.
SAIC has expanded back into the national security sector with its acquisition of Scitor. Scitor provides technical and engineering support services for classified U.S. Air Force and intelligence community programs. The acquisition is in a market with which SAIC is familiar and is likely aimed at providing an alternative revenue stream for the company via intelligence services.
By reconstructing and optimizing its organizational structure, SAIC is continuing to position itself solidly in the highly competitive markets it serves.
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