Acquisitions and '5G.mil' on the mind of Lockheed's CEO

Lockheed Martin has completed one acquisition so far into Jim’s Taiclet’s tenure as chief executive and sounds like more could happen o carry the company's and his idea of “5G.mil” forward.

During Lockheed’s third quarter earnings call Tuesday, Taiclet told investors the defense company is examining both further M&A transactions and forming joint ventures with other firms and particularly some in the commercial technology landscape.

Taiclet, who succeeded Marillyn Hewson in June, highlighted the company’s acquisition earlier in October of the hypersonics portfolio formerly held by Integration Innovation Inc. or i3.

"(I3) gives us a novel capability in thermal management for hypersonic glide bodies, which is something we wanted to bring in house and accelerate our own potential for developing that piece of the technology that’s absolutely critical,” Taiclet told analysts.

M&A and partnerships both aim to “thicken our portfolio and also to bring the technologies faster into the company that we think are going to be crucial for the future,” Taiclet said.

Lockheed also believes the 5G.mil concept is one of those crucial areas of the future regardless of the macro environment the company and sector find themselves in.

The Defense Department took one step toward more of a 5G future earlier in October when it announced $600 million in further awards to a mix of telecommunications firms and government IT systems integrators for further testing and experimentation at five military sites.

DOD’s ongoing efforts on the testbed and implementation front are in pursuit of standard 5G terrestrial communications based on what is available in the commercial market. Lockheed’s play in the 5G.mil arena will not be on that front, Taiclet indicated.

“We’re interested in operationalizing the technical capabilities of 5G waveforms, and technology software and hardware, to improve our defense products and our defense products’ performance in an interrelated way,” he said.

“That’s a derivative of having the network in place,” Taiclet added. “We need a global 5G connectivity platform.”

From having that basic connectivity in place, what else is needed in a 5G.mil construct in Lockheed’s eyes?

“We need edge compute nodes and edge transmission points to be able to get into battle outside the bases,” Taiclet said. “We’re really talking more about how you go to war on a battlefield and bring with you and have available to you the throughput of data, the latency benefits and the ability to do software-defined networks and manage spectrum dynamically on the battlefield.”

Revenue in the third quarter climbed 9 percent from the prior year period to $16.5 billion and all four segments registered top-line growth, while profit rose 6 percent year-over-year to around $1.8 billion.

Sales are now expected to show 9-percent growth this year to $65.3 billion, compared to Wall Street’s outlook of $64.6 billion, with profit anticipated to jump 8 percent to $7.1 billion.

In addition, Lockheed gave an early glimpse at how it sees next year: 3-percent sales growth to $67 billion and an operating margin of between 10.9 and 11.1 percent. Lockheed’s stock was 2.3 percent lower to $374.70 in mid-afternoon trading as analysts expected next year’s preliminary sales outlook to be $68 billion.

Tuesday’s call with investors also included new information on what Lockheed has been up to during the coronavirus pandemic and how it has responded.

Since the pandemic’s start in March, Lockheed has hired around 12,000 new employees and accelerated $1.8 billion in payments to other businesses in the supply chain.

Taiclet said Lockheed is “engaged in discussions with the Defense Department regarding a macro settlement for issues caused by the virus.”

A section of the CARES Act economic relief law enacted in March allows contractors to get reimbursed for costs of keeping their workforces in a ready state if employees are not able to get to a designated government facility. Section 3610 of the CARES Act is slated to expire Dec. 11 and no funds have been appropriated for it yet.