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Companies active in the defense industry must accurately identify technology trends for advanced defense systems, including radar, communications, electronic warfare and EO/IR. Analyzing the financial performance across a range of companies, Strategy Analytics analysis indicates that with defense budgets being cut, the defense industry was in the early stages of a downwards cycle in 2009 as growth trends were reversed.
Year-on-year revenues declined 4% in 2009 versus the 11% year-on-year growth experienced over the 2007-2008 timeframe. This translates into compound annual growth for industry revenues more than halving for the 2005-2009 timeframe, growing at only 3% versus a CAGR (compound annual growth rate) of 7% for the 2004-2008 period.
Overall profitability in the industry also dropped significantly year-on-year by over 42% in 2009.
Boeing, EADS and BAE Systems were amongst the revenue leaders, while Lockheed Martin, Northrop Grumman and Raytheon were amongst the top eight companies that generated profit margins of 5 percent or more.
2010 has continued to be a year of adjustment for the industry overall and while the present climate for the defense industry still has most of the major players and in turn their sub-contractors wary of making any strong predictions of how their business will fare into 2011, over two dozen contract awards worth in excess of a billion dollars were noted over November to December.
Some examples included:
- Northrop Grumman could expect to receive an approximately $920 M share of the entire $2.3 B award for the purchase of up to 670 LITENING SE advanced targeting pods through 2017 as part of the Air Force's Advanced Targeting Pod – Sensor Enhancement (ATP-SE) program
- Other Navy news included another success for Lockheed Martin for a $97 M award for the DDG AEGIS production contract
- Boeing gained an extension to its Small Diameter Bomb contract with a $106 M award
- LONGBOW Limited Liability Co., the joint venture of Lockheed Martin and Northrop Grumman, received a $26.8 M contract from the US Army Aviation and Missile Command for LONGBOW Fire Control Radar (FCR) Life Cycle Contractor Support
- The French arms procurement agency DGA awarded Astrium a €795 M contract for two satellites for the optical space component (CSO) that will replace the current HELIOS 2 military observation satellites
- Contract awards have held up well with some fairly major announcements especially with US and NATO forces. These have included Raytheon receiving a contract totaling $240 M for the US Navy’s Arleigh Burke class of warships for AEGIS radar systems
Merger & Acquisition activity in the sector remains steady and could increase thanks to cash rich larger firms looking to secure market share moving into 2011.
Investment in next-generation materials and device technologies continues as evidenced by TriQuint receiving a $17.5 M manufacturing development contract from the US Air Force. US and allied nations therefore look to be well set for access to the new technologies that can further boost force effectiveness.
In addition, there have been new orders placed for parts in several key new programs. High profile once again has been the implementation of new-generation AESA radars for both airborne and shipboard platforms. Much of this has been confined to the US, but Cassidian Electronics also reported further progress for its E-SCAN phased-array radar technology with an award from the German Navy.
Strategy Analytics believes demand will return with a particular emphasis on implementing advanced technologies for existing platforms. This will provide a healthy retrofit market for radar systems as well as advancing capabilities on new platforms. Meanwhile, the focus on net-centric warfare will drive opportunities on the communications front and the requirements for wideband, higher power and high frequency performance will also underpin solutions for EW as well. Collectively, this will drive demand for RF, microwave and millimetre-wave solutions with advanced semiconductors such as gallium arsenide and gallium nitride playing an increasingly central role moving forwards.
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