WT Business Beat

By Nick Wakeman

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Nick Wakeman

Defense giants get ready for tough times

The big defense companies are on the move, tightening their belts and trimming their businesses as they anticipate a tougher business climate ahead.

The latest is Northrop Grumman Corp., which announced that it will consolidate its Gulf Coast shipyards and may even sell its shipbuilding business.

The company’s statement from chief executive officer and president Wes Bush: “Our decision to consolidate the Gulf Coast facilities is driven by the need for rationalization of the shipbuilding industrial base to better align with the projected needs of our customers.”

In other words: There ain’t as much money to be made in ships as there once was.

The shipbuilding sector for Northrop Grumman brought in $6.2 billion in 2009 for the company and is one of five sectors, the others being aerospace, electronic, information systems and technical services.

Northrop is not alone among the big defense players in reshaping its business in light of what will surely be cuts or at least flat growth in the big defense platform business.

Boeing has been making acquisitions in the intelligence and cybersecurity markets with the acquisition of Argon ST (intell) and Narus (cyber)

Lockheed Martin is selling two units so it can focus on its core growth areas. The sale will jettison about $1.3 billion in annual revenue.

The company also has announced that it is offering executives early exit incentives as a way of reducing cost.

I wrote in my previous blog on the coming "fiscal cancer" about what the government likely will do as it tries to deal with budget and deficit problems. The moves by Boeing, Lockheed and Northrop will become more common as we move deeper into what could be a catastrophic fiscal crisis.

While the more traditional IT companies don’t have the same breadth of business lines as the large aerospace and defense companies, they would be smart to follow the actions of these companies because they often lead the way for the government contracting market, on its way up and down.

Trimming costs and focusing on core markets have never been as important as they will be going into the next two or three years.

Posted by Nick Wakeman on Jul 15, 2010 at 7:23 PM


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