Contractors Target Security Spending

Defense may be lagging, but some companies see an opportunity in technologies that can be marketed as protective tools to both the U.S. Department of Defense and the Department of Homeland Security.

Although substantially smaller than the larger market for weapon systems, security is likely to be more stable, analysts said.

Intellicheck Mobilisa, a Port Townsend, Wash.-based small defense contractor, is targeting the security market with a sensor-laden buoy that can keep an eye on waterways, scanning for vessels and radiation alike.

The program, funded by the U.S. Navy for $18 million, has an opportunity for defense growth, said company CEO Steve Williams.

“They’re going to cut Northrop Grumman or an aircraft carrier, they’re going to cut Lockheed and a jet fighter; they’re not going to cut security,” he said. “They just can’t afford to do that.”

The product was specifically developed for the defense government customer, Williams said.

“In the early days, I don’t know if we thought there was a commercial market,” he said. “We thought there was only government.”

The statement that a specific segment of the national security market will be protected from cuts has been a common refrain, said Steve Grundman, a fellow at the Atlantic Council and founder of Grundman Advisory.

“The conventional version of that is, ‘Don’t worry, we’re in the sweet spot,‘“ he said. “But everybody can’t be in the sweet spot.”

Grundman said that security, be it homeland security or protection of defense assets such as ships, may be a better market than some, but still is not a perfect environment in which to compete.

“Is security one of those sweet spots? I don’t think it’s the sweetest spot, I think it really, really depends,” he said. “I don’t think there is any spot that is wholly sweet.”

Part of what is making the market difficult is European competition, said Phil Finnegan, an analyst with the Teal Group, Fairfax, Va.

“European companies are putting a higher priority on security than U.S. companies in some ways,” he said. “There’s a recognition by European companies that their defense budgets are in worse shape than the U.S. defense budget. Second, it’s an easy entry into U.S. markets. It’s much less sensitive than defense.”

Finnegan said that although there is tough competition, homeland security in particular is likely to see some stability.

“It will fare better, the question is how much,” he said. “DHS moves cautiously, and I think a lot of companies recognize that. They recognize that it’s not nearly as large as the defense market. It’s just not going to be a panacea. Nonetheless, they are interested in seeing what opportunities there are.”

Buoying a Company

While the buoy system designed by Intellicheck Mobilisa, called the Aegeus Wireless Buoy system, was developed for the Navy, the company is also tapping into a recent trend in efforts to make the product commercially viable.

Originally, the company dipped its toe into the buoy market by working with the Department of Transportation to create a wireless network in Washington state’s Puget Sound for use by ferries. After the success with that project, the Navy approached the company for a way to help it monitor the waters around tied-up ships, as well as harbors in general.

The result was the anchoring of about a dozen buoys, including one on the Potomac River, keeping an eye on the waterway to Washington, D.C. The buoy, painted yellow to avoid collisions with passing vessels, works by using solar panels and a wind turbine to generate power for a variety of sensors.

The buoy monitors passing water to check for oil content, among other pollutants, has a radiation sensor meant to detect dirty bombs, as well as both night vision and daytime monitors that are triggered by motion, and weather equipment. All of the sensors are designed to transmit data wirelessly, and the energy generated from the panels and the turbine can charge the batteries to support the entire rig, weather permitting.

The platform is designed with attachment points so sensors can be removed and added as desired. That flexibility has resulted in a broad market for the product, with oil companies looking to deploy the buoys near rigs to detect leaking oil and foreign governments looking at harbor defense.

The Navy, which provided the funding behind the development of the buoy system, views the product as an opportunity to monitor craft around large vessels, potentially protecting against a destroyer Cole-type bombing incident.

With an increasing number of defense contractors looking to overseas markets and commercial applications of technologies, the ability to sell the product to multiple customers has helped the system grow substantially. Aegeus now represents about a quarter of the company’s revenues, powering the growth of the 50-employee contractor.

The application near oil rigs could be particularly lucrative, Williams said. Rigs typically leak a small amount of oil, resulting in constant alarms from the on-rig sensors. In practice, companies turn these off as the alarms are unceasing. By moving the sensor to a nearby buoy, the company can avoid false alarms while still gathering intelligence on leaks.

The overseas attention is being increased by the Department of State, Williams said. “The State Department actually brought 27 countries by to look at it, because they get it,” he said. “They understood it.”

The opportunity to develop a product for the Navy, with outside applications, benefits both parties, Williams said. “They’ll have a product at the end of the day, and we’ll have a product.”

Intellicheck Mobilisa

• Founded: 1994

• Employees: 50

• 2011 revenue: $13 million

• Headquarters: Port Townsend, Wash.