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Protecting U.S. Could Boost Tech Industries

Homeland Security may bring long-term increase in spending on advanced gear and computers.

November 21, 2002|Jube Shiver Jr. | Times Staff Writer

WASHINGTON -- The technology sector, beset by lackluster interest in computers and other gadgets, could get a boost from the Senate's passage of a homeland security measure that portends increased government spending on anti-terrorism gear.

The bill passed by the Senate late Tuesday calls for bringing together 22 existing federal agencies into a massive new Department of Homeland Security, which would require hundreds of millions of dollars of new phones, computers and other items to get up and running.

Further down the road, the government is expected to spend even greater sums on anti-terrorism research and on creating new data-scrambling, surveillance and electronic screening devices.

The House approved a similar bill last week, and President Bush is expected to sign the measure into law before the end of the month.

Supporters see the government eventually playing a key role in spawning an important new industry, much as it laid the foundation for the Internet by developing a worldwide data network that could survive a nuclear attack.

Industry experts estimate that surveillance, identification and intrusion-detection equipment sales and services could grow from less than $16 billion annually to nearly $40 billion over the next five to seven years. Those figures include government and private-sector outlays.

The homeland security measure is "a very big positive," said Barry Leffew, a vice president at VeriSign Inc., a Mountain View, Calif., company that provides Web site authentication and security services. "It could generate a very substantial" amount of business.

Since terrorists hijacked four commercial airliners and slammed three of them into the World Trade Center and the Pentagon more than a year ago, the nation can't seem to get its fill of anti-terrorism protections.

"There's certainly ... a lot of political pressure to raid the Treasury and throw money at the problem" of security, said John Pike, director of Global- security.org, a nonprofit Washington research firm.

The Immigration and Naturalization Service, for instance, has begun directing universities to update their computer networks so they can submit data on enrolled foreign students in encrypted form.

Similarly, the Transportation Department has begun imposing new security requirements on the nation's airports, rail and trucking facilities.

So far, companies providing equipment and services to airports have been the main beneficiaries of the nation's increased vigilance. But scores of other businesses also are hawking a wide range of wares, including radar-tracking devices, electronic fingerprint scanners and computer encryption software.

One security company benefiting from the trend is TimeDomain Corp.

The Huntsville, Ala.-based start-up recently won a $3-million contract from the Pentagon to develop a radar tracking device for military use. The company has been working on a technology called ultra-wideband, which could provide a host of new wireless services such as radar surveillance of intruders, locating buried earthquake victims and greatly improving collision-avoidance systems.

"There is a big emphasis on commercial, off-the-shelf solutions" in government security contracts, said Jeff Ross, TimeDomain's vice president of corporate development.

Nonetheless, some experts fear that the security mandates could backfire in overspending and poor technology choices.

"When the government starts putting its fingers in commercial technologies, you are going to end up wasting a whole lot of taxpayer money and end up with things that only bureaucrats love," said James Gattuso, a research fellow at the Heritage Foundation, a conservative Washington think tank. Politicians, he added, will back "pet projects" from entrepreneurs who "can't get funding for their ideas" from the private sector.

For its part, Wall Street is not anticipating a financial bonanza for the industry -- at least not right away.

Shares of some security firms rose after the terrorism attacks last year, but they soon lost steam as investors failed to see sustained gains.

"Investors are in a 'show me the money' mode," said Timothy Quillin, an analyst at Stephens Inc. in Little Rock, Ark.

The government programs "are going to be relatively fragmented and spread out over a long period of time," Quillin said. "After World II, it took 12 years to put the Defense Department together. And I think this is going to be just as long a process."

Still, as Pike noted, the industry is at least starting to pick up some significant momentum.

To this point, "the government has had no real money to spend" on anti-terrorism initiatives, he said. But with the Department of Homeland Security almost a reality, "that could change soon."

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