Both Lockheed Martin and Raytheon have released their worldwide financial results for the year to end December 2011. As major defence contractors with the majority of revenues derived from activities far removed from our SITS area of interest, it's not too difficult to determine how well they are doing in their IT businesses, but it's nigh on impossible to accurately determine their performance in the UK. Nevertheless, we’ll give it a go!
At Raytheon, the division where the activities most resemble those of a traditional SITS supplier is ‘Intelligence & Information Systems’ (IIS). Globally, that division saw full year net sales increase by 9% to $3.0bn. However, Raytheon highlights that FY10 net sales were reduced by $316m as a result of the UK Border Agency (eBorders) program adjustment in Q2. Perhaps then, a better indication of underlying performance is the 9% decline in Q411 (compared to Q410) revenues to £753m. Meanwhile, at Lockheed Martin, the most comparable business unit is Information Systems & Global Services (IS&GS). Unsurprisingly Lockheed states that the IS&GS business segment was affected by “the fiscal pressures constraining government purchases of information technology and other products and services during 2011”. Net sales in IS&GS declined by $92m, or 3%, to $9.4bn. Though it appears the decline was primarily attributable to the absence of a US contract to support the US census and a decline in activities on a US Department of Defense progamme.
Neither company gives an indication of performance by geography. However, we have previously estimated that Lockheed derives revenues of about £290m from its SITS activities (more in a ‘census’ year), with a large proportion coming from its dealings with the Intelligence Agencies, while Raytheon’s peaked at about £350m when it has the eBorders contract under its belt but was less than £250m by our estimates in 2010. On the face of it, we’d be surprised if these figures increased in 2011 – more likely there was a small decline. Either way, IT services activities don’t seem to be doing the job that the defence contractors hoped they would i.e. filling a void as traditional activities related to defence equipment/platforms declines (see Can defence contractors challenge UK SITS suppliers?). Most of the defence contractors had appeared to be focusing their efforts in the cyber security space (see Defence contractors focus on cyber security). Indeed during the last quarter Raytheon acquired two companies in the US to boost its capabilities in this space. However, it’s unclear whether this strategy is beginning to deliver any results as yet. We are setting up meetings with management and hope to learn more in the coming weeks.