Northrop Grumman Corp.
P> Total Contracts $909,676,000
Corporate Headquarters: Los Angeles, Calif.
Northrop officials are gambling once again that growth in size means growth in profits. Northrop Grumman acquired in March the defense and electronics businesses of the Westinghouse Electric Corp. for $3 billion in cash. Renamed the Electronic Sensors and Systems Division, the group produces radar and electronic systems for combat aircraft, battlespace management, military space and underseas programs, as well as air traffic control. In addition to producing electronic countermeasures, tactical communications and marine products, Northrop Grumman has expanded its sizable repertoire to muscle through a shrinking defense market.
Northrop benefited handsomely when it acquired Grumman Corp. in April 1994. Electronic sales rose 40 percent for 1995, and operating profit was up 47 percent for all of 1995, principally as a result of operating margin and sales volume on the E-2 Hawkeye and E-8 Joint Surveillance Target Attack Radar System. Northrop Grumman is under contract for seven new E-2C Hawkeyes for the Navy, part of an expected total purchase of 36. Early-warning radar system aircraft have been in service for more than 30 years and will go through continuous upgrades to keep them viable.
According to Robert Nelson, vice president of business strategy, broadening the business portfolio has meant looking for complementary businesses to bolster the array of services Northrop Grumman already provides. "The addition of Westinghouse's electronic systems group is a growth acquisition for us," said Nelson.
With the acquisition, Northrop Grumman can eye more markets that include radar, small systems, propulsion systems, electro-optics and electronic warfare. The addition also has solidified the company position in the electronic systems integration business. "The ESSD adds critical mass to be a competitor in the market," added Nelson.
Based on current business plans, including projected growth from the Westinghouse defense and electronics acquisition, total revenues could surpass the $10 billion level by the turn of the century.
The company's business backlog at the end of 1995 stood at $9.9 billion, which tumbled from the $12.2 billion reported at the close of 1994. Contract acquisitions also took a dive from $12 billion in 1994 to $4.6 billion in 1995. Then when the Pentagon slashed the multibillion dollar B-2 stealth bomber program from the 1996 budget, Northrop Grumman had to take a hard look at where and how its bread would be buttered.
Referring to the decline of sales in the military and commercial aircraft division, Herb Anderson, vice president of the Data Systems and Services Division, noted that there are no new airplanes in the defense budget. Instead, management anticipates upgrades of present fleets to comprise the bulk of future defense contracts.
Though sales are expected to increase steadily, the federal sector will leave center stage to become a minor player in overall revenues. In 1994, military and commercial aircraft sales accounted for 69 percent of a total $6.7 billion in net sales. In 1996, the same area is estimated to comprise 46 percent of an expected $8 billion net sales. By 2000, Anderson predicts total aircraft sales to drop to 32 percent of $10 billion net sales. The declines signal the gradual move to send the division to the pastures in the years to come.
All eyes are now on the Electronics and Systems Integration Division, which finished 1995 at $2.16 billion, compared with a more modest $1.55 billion in 1994. "We will be pursuing contracts in the high-performance computer markets," said Anderson.
In addition to winning state tax processing contracts in New Jersey and Mississippi in 1995, the company was also awarded a contract for Florida and has a previous contract with Delaware. In both New Jersey and Mississippi, a new imaging-based client/server computing system was installed to automate tax returns. Using state-of-the-art character recognition technologies, the systems are similar to the ones installed at all five Internal Revenue Service tax-processing sites.
Northrop Grumman is moving quickly to expand its business base by offering services that have worked well for the company. By playing the same reliable cards, Anderson said that IT opportunities with the Census Bureau, the Department of Treasury and intelligence areas are ripe for the picking.
The sweeping move across the government to downsize agencies and to privatize has altered the marketplace for Northrop Grumman and all major defense contractors, according to Anderson. The commercial and civilian markets are the promise of the future. The contractors are courting state and local governments and private industry to garner contracts for large-scale information systems integration and professional services, computer hardware and software support, as well as engineering operations.
The 42,000-person firm has five divisions: Commercial Aircraft, Dallas; Data Systems and Services, Bethpage, N.Y.; Electronic Sensors and Systems, Baltimore; Electronics and Systems Integration, Bethpage, N.Y.; and Military Aircraft Systems, El Segundo, Calif. With the shakeup of the defense industry, the B-2 division in Pico Rivera, Calif., and the Military Aircraft Division in Hawthorne, Calif., were merged into the El Segundo group.