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SAIC Slips on Contract Cut

The house carves money out of the company's largest contract.

Shares of Science Applications International Corp. (SAI) sank Wednesday after a House of Representatives committee decided to clip the budget on SAIC's largest contract.

The House Armed Services Committee slashed $867 million from the Future Combat Systems project, which SAIC and

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jointly manage. The project is intended to develop a communications system that lets field commanders easily pull data from various sources, including foot soldiers, ground vehicles and unmanned reconnaissance aircraft. SAIC is responsible for 15% of the work.

The committee's decision came amid cuts to several other military modernization programs. The full House and Senate have yet to weigh in on the decision. Spokespeople for SAIC and Boeing said it's too early to speculate on how the committee's proposed budget cut will affect the FCS project.

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The proposed cuts are for fiscal 2008. Boeing spokesperson Mary McAdam said the project is "on budget and on schedule."

The contract for the design phase, signed in 2003, was initially worth $14.9 billion. It subsequently grew to $20.9 billion.

The project is still in the initial development stages, according to SAIC spokesperson Regen Wilson. In October, SAIC unveiled a video game for desktop computers to simulate how the Future Combat System will work.

Despite the cutback, Wilson said the company still expects the military to have one brigade using the Future Combat System by 2015. The contract calls for all designated brigades to start using the system by 2025.

Wilson could not say how much the project has contributed to SAIC's revenue. In April, the company reported sales of $2.1 billion for the fourth quarter and $8.3 billion for the year. SAIC logged $2.7 billion in fourth-quarter bookings.

SAIC shares closed the day down 34 cents, or 1.8%, to $18.66. The stock is about 9% below its high reached in late October shortly after its initial public offering.