Intell, cyber fuel Raytheon's Top 100 play

Despite the sputtering economy and the uncertainties of the federal marketplace, Raytheon Co. had a busy — and profitable — year in 2010.

The company reported 2010 net sales of $25.2 billion and won about a half-dozen large federal contracts, achieving one of the highest competitive win rates in Raytheon history.

In addition, the government contractor acquired Technology Associates and Trusted Computer Solutions (TCS) to strengthen the cyber capabilities of Raytheon’s Intelligence and Information Systems (IIS) unit.

Those activities helped land Raytheon at No. 4 on the 2011 Top 100 list of the largest federal government contractors, with $6.2 billion in prime contracting revenue for fiscal 2010.

Among the company’s major wins, IIS captured the Air Force’s initial $886 million contract to develop the first two deliverables of the Advanced Control Segment of the Global Positioning System, known as GPS OCX.

“2010 for us was really [about] going after very large must-wins for the business,” said Lynn Dugle, company vice president and president of Raytheon IIS in Garland, Texas, citing the Air Force contract as a key win.

Dugle said the GPS OCX win has elevated IIS to a prime contractor rather than a subcontractor to the satellite makers. “It was part of our strategy to start stepping up into those prime roles,” she said.

Raytheon IIS also hit the trifecta by winning all three large intelligence community contracts it bid on, she added, but couldn’t offer more details because of the nature of the classified awards.

Raytheon capped the end of the federal fiscal year in September by winning two Joint Polar Satellite System (JPSS) prime contracts from NASA’s Goddard Space Flight Center with a combined value of more than $1.7 billion over eight years.

Dugle said Raytheon has chosen not to compete in the overcrowded federal hardware and IT services market because it is a low margin business that would dilute the company’s overall profit margins.

Instead, the company has opted to focus narrowly on cybersecurity offerings in just three areas: multidomain accessibility speeds, insider threat detection and vulnerability research.

“In hindsight, those were very good calls and are serving the business well,” Dugle said.

In fact, Raytheon’s cyber business grew more than 20 percent in 2010 and has continued to grow organically and through acquisitions, she said, adding that future acquisitions will be to strengthen those three areas.

“We haven’t made the largest cyber acquisitions [in the industry],” Dugle said, referring to Technology Associates and TCS. “But I think we’ve made a number that are really accelerant to what we have as a 40-year intell community [contractor] to kind of differentiate ourselves from the pack.”

Citing TCS and its thin-client cross-domain security solutions, Steve Hawkins, vice president of Raytheon Information Security Solutions, an IIS unit, said, “We have some products in that area now in evaluation across a number of government agencies that I think will really take off for us.”

Neither Dugle nor Hawkins would put a dollar value on cybersecurity’s contributions to the corporate bottom line.

“I think we’ve been able to grow at about two or three times [the rate of] the market I’ve seen out there,” Hawkins said.

Last year’s federal contracts wins of about $1 billion are now Dugle’s target for 2011. “To meet my competitive booking rate, I’ve got to win 124 contracts at approximately $9 million each,” she said.

Raytheon executives know 2011 is a tougher year for contracting than 2010 and are geared up to go after those multiple small wins, “there’s just not a huge winner out there this year,” Dugle said.

But with IIS involved in intelligence, surveillance and reconnaissance; ground stations for unmanned aerial vehicles; the GPS OCX and JPSS contracts, and now cyber, “we believe that we’re well-positioned,” Hawkins said.

That makes Dugle bullish on her Raytheon sector’s future.

“We’ve projected to grow at three percent this year. We’re already doing detailed planning on 2012, and that’s all [built] around how responsive you can be, how fast you can be, in the markets in which we work,” she said, because the cybersecurity market moves a good deal faster than building radar or missiles.