Joey Cresta, an analyst with Technology Business Research Inc. in Hampton, New Hampshire, who closely tracks the government services market, says that being known as an innovative company — and demonstrating a track record of such — will become even more critical moving forward. That’s because government contractors will be challenged to truly differentiate what they do and how they do it as the technology stacks of today and the future continue to evolve. 

“As computation, storage and now the network become virtualized, they become more of a commodity, just as automation commoditizes legacy services,” Cresta said. “More value will be placed on a specific set of skills around writing algorithms leveraging mission or customer knowledge to solve specific client pain points.”

Cresta sees Leidos utilizing this push to potentially grab high-end, government-funded R&D work in areas like intelligence, surveillance and reconnaissance (ISR) as well as data analytics and AI — all things Defense Department officials in particular talk up as crucial to winning on the battlefields of the future, both real and virtual.

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Joey Cresta, an analyst with Technology Business Research Inc. in Hampton, New Hampshire, who closely tracks the government services market, wonders if SAIC’s (NYSE: SAIC) deal for Engility — a marriage of two legacy companies providing systems engineering and technical assistance (SETA) services to the government — might signal the beginning of the end of contractors chasing scale.

That advantage, Cresta writes in a new research note, erodes in an era where in-demand, agile tech skills, industry partnerships and expanding intellectual property portfolios will provide more of a competitive advantage than size.

“If SAIC focuses purely on the scale advantage of the Engility deal rather than the IP monetization factor, it could in short order find itself in a race to the bottom,” he adds, “with diminished pricing due to labor automation hamstringing financial flexibility and capacity for continued reinvestment to keep up with the ever-accelerating pace of technological change.”

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Despite challenges, operators will push forward with NFV/SDN and will scale their investments in these technologies. Operators must transform to stay relevant and competitive in the digital era, and NFV/SDN is a critical component of that transformation. — Senior Analyst Chris Antlitz

 

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General Dynamics will use healthy top-line growth to champion the early success of the CSRA acquisition, but we see cause for concern as valuable leaders from CSRA depart GDIT due to potential misalignment of the two companies’ distinct cultures and business philosophies. — Joey Cresta, Analyst

But there’s also an opportunity here for the company to broaden its pursuits to capitalize on the current bullish services environment in the federal sector due to the need for technology modernization. — Joey Cresta, Analyst