Lockheed Martin's Infotech Juggernaut

The Pentagon feared the new, combined contractor will have a monopoly on defense manufacturing, but the company will clearly emerge at the top of the information technology industry

CHICAGO -- Steeped in the mystique of military contracting, the merger of Martin Marietta and Lockheed Corp. attracted considerable attention from the Pentagon and federal antitrust authorities. They feared the $23 billion mega-company would hold a virtual monopoly on the manufacture of missiles and other munitions.

But the deal was done for reasons other than just consolidating the declining defense industry, as daunting as that task may be. Transferring information technology know-how gathered at taxpayer expense to the private sector is a key factor as well.

Spokeswoman Lori Tollinson said the firm has 35,000 employees devoted to information technology in one form or another. And they help generate infotech revenues of $4.5 billion -- in everything from parking ticket systems to video games -- making Lockheed Martin one of the largest players in the red-hot market for information technology services.

Lockheed Martin President Norm Augustine repeatedly mentioned the company's ventures with game maker Sega and other infotech projects as a potentially lucrative business in the future, during a news briefing at the tony Drake Hotel here after shareholders' meetings, which ratified the merger.

As a percentage of employees, infotech represents a huge chunk of the 170,000 employees at the combined company overall. Still, that figure is sure to drop over the next 18 months due to redundancies. Corporate staff for Lockheed Martin will be combined for a total of about 600 jobs, a 40 percent reduction, in Bethesda, Md.

"We did this to create jobs, not lose jobs," said Augustine. "We realize the uncertainty and difficulty for everyone. One has to do things that are painful in the short term, but good in the long term." One persistent complaint in the weeks leading to the final merger was that the combination was not a merger of equals, with Lockheed taking a subservient role. Many feared for the fate of Lockheed's much-vaunted entrepreneurial culture, famed for its skunk works operation that created stealth technology.

Under the merger's terms, former Lockheed shareholders receive 1.63 shares of Lockheed Martin stock for each Lockheed share. Former Martin Marietta stockholders receive stock on a one-for-one basis.

Questions remain, however, about how effectively Lockheed Martin can fuse infotech resources cobbled together in recent years through a series of acquisitions and home-grown efforts. In 1993, Martin Marietta purchased the aerospace division of General Electric Co. for $3 billion, which had considerable information services business, including the technologies used by Sega.

At that point, infotech was a $1.5 billion business for the company. Lockheed's infotech holdings now push the total over $4.5 billion, making Lockheed Martin one of the leading information services firms, competing with concerns such as Computer Sciences Corp. and Electronic Data Systems Corp.

With more than $3 billion a year in combined R&D, Lockheed Martin should have a leg up on those corporate foes. One strength of the new company, inherited from GE, is in object-oriented programming techniques that build software in reusable modules, rather than from scratch. That technique has helped the firm speed development of complex systems in satellite command and control, intelligence gathering and imagery analysis.

According to Tollinson, the new entity will consist of four operating units, and several joint ventures. The four units include aeronautics, electronics, space and missiles, and information technology and services. A look at the corporate structure sheet handed out at the news briefing shows that the infotech business has more than 10 companies under its aegis, more than double the number of concerns in the missiles sector.

The Lockheed Martin brand can also be found on Sega Enterprise Ltd.'s Daytona 500 racing simulator game, based on computer hardware made for military training simulators, which ready fighter pilots for actual battles. Information technology from the companies is also found in letter-sorting machinery for the U.S. Postal Service, fingerprint identification technology used by police, a 12-year contract with the Department of Housing and Urban Development for mortgage loan data exchange, and a deal with the Treasury Department for financial statements. Moreover, the company's information technology is also in air traffic control systems for the Federal Aviation Administration and the Canadian air traffic system. Finally, the company operates a computer database for the Environmental Protection Agency in Raleigh, N.C., handles data storage for the Immigration and Naturalization Service, and even keeps track of records for bankrupt Orange County, Calif. Other customers include the FBI, the Justice Department and the Drug Enforcement Administration, for data processing and information systems modernization.

Lockheed Martin also manufactures computer peripherals, including plotters, printers and digitizers. The company sees future opportunities in commercial information systems, virtual reality and electronic approaches to reinventing government. n


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