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Aug. 26, 2004 – Defense contracts, the boon and bane of many a young technology startup; have been welcomed by several small tech firms in the Pacific Northwest.
Portland, Ore.-based FLIR Systems Inc., (Nasdaq:FLIR), which makes infrared cameras that use MEMS technology, has a $6.3-million Air Force contract for one of the company’s thermal imaging systems to be installed in helicopters for ICBM security missions.
Bothell, Wash.-based MicroVision, (Nasdaq:MVIS) develops optical imaging systems mounted on helmets worn by pilots. The company has about 100 of its Nomad visualization systems deployed with the U.S. Army’s Stryker Brigade; to give drivers of Stryker armored trucks/tanks a good view of topographic data.
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MesoSystems Technology Inc. in Albuquerque, N. M. manufactures airborne microbial control systems. The company’s CEO Charles Call was formerly associated with Pacific Northwest National Labs. The bio-sampler sensor collects micron and submicron airborne particles and soluble vapors into a small, removable cartridge. MesoSystems customers, including first responders, building system managers, and government/military personnel, have bought 500 BioCapture systems.
Each company credits half or more of its revenue to government contracts. These are welcome sales for young companies trying to build a revenue base while continuing to fund product development. But government project delays and shifting defense priorities make this base a shaky one.
“About half of FLIR’s business is defense related,” said Karl Oehlschlaeger, an analyst with Banc of America Securities (BAS) who follows FLIR as part of his global aerospace and defense research duties.
“So, it’s been a great thing for them. In general, it can be a good way to make money, [since] the defense customer, the U.S. government, places capabilities above low cost, so they spend lots of money on technology.”
Oehlschlaeger tracks how fast defense spending is growing and currently projects an increase of about 6 percent in 2005. After that, he expects the rate of increase to slow. However, that spending for FLIR will grow well in excess of that, he said, because their products are in such high demand. BAS has an investment banking relationship with FLIR.
With a current market capitalization of $2 billion, FLIR has seen most of the troughs and peaks that characterize defense contracts smoothed out and the stock price has more than doubled in the past 52 weeks.
Founded in 1993, Microvision is still in the early stages of its development. “We are very cautious and don’t put all our eggs in one basket between commercial and government sales,” said Tom Sanko, vice president of marketing for Microvision.
“On the product side, what we’re trying to do, at least for now, is take the commercial-off-the-shelf and sell to the military. That’s better for them and better for us, because it is short-term revenue that can ramp quickly,” Sanko said.
The company divides its business into two sections: technology development, with contracts that make up more than half of the company’s revenues, and off-the-shelf products, he said.
“Last year we had the Stryker Nomad order that made up more than half of our product revenue. It’s very strategic for us, because it’s part of our [business] model to leverage the technology development contracts into our commercial products.”
Microvision’s market cap is now $127 million, as their stock trades in the middle of their 52-week trading range of $4 to $11. In July this year, they spun off their subsidiary, Lumera (Nasdaq:LMRA), raising $42 million. Also based in Bothell, near Seattle, Lumera makes nanotechnology-based polymer materials for wireless antennas.
“FLIR’s order books are stronger than Microvision’s have been,” said Alan Robinson, director of research at Delafield Hambrecht. “I think FLIR’s products have demonstrated their efficacy, because they have been on the market longer. “Microvision is more of a startup company, even though it was founded in 1993, and still has a fairly narrow product portfolio.
“Microvision has fallen afoul of a consistent theme in terms of military budgets,” Robinson says. “A lot of money is being spent in the military sector, but they are concentrating beans and bullets. There has been a needs statement issued for about 500 more Nomad visualization systems, but it is an unfunded item right now.”
Headquartered in Albuquerque, N. M., MesoSystems Technology Inc. makes a bio-sampler sensor that collects micron and submicron airborne particles and soluble vapors into a small, removable cartridge. Ardesta LLC, the parent company of Small Times Media, is an investor in MesoSystems.
Defense contracts continue to pump strategic capital into the company, said CEO Charles Call. “In some cases, the work we are being contracted to do is good for getting products into the market.”
The biocapture product the company makes, for example, was funded under a Small Business Innovative Research grant. “Most of the market for this product is the private market,” and SBIR grants are intended to help get products commercialized, he says.