Just finished a four-part series of reports, that bring together strategic analysis and commentary on twenty of the world’s major defense industry focused companies. The reports outline the financial performance of each company (with some exceptions) and discuss activities within the defense sector, highlighting core strengths, perceived weaknesses and overall competitive positioning in the market.

Following a sustained period of growth, revenues as well as profitability dropped for the defense industry in 2009, potentially marking the beginning of a downwards spiral. However revenues stabilized in 2010 and increased year-on-year in 2011.

Early analysis and indicators suggested that revenue growth and profitability would continue to be maintained in 2012 and this is being affirmed as results are released by companies in Q1 2013. This is despite the uncertainties surrounding sequestration and the “fiscal cliff” in the US as well as budget uncertainties in European and other international markets.

Moving into 2013, maintaining profitability will be the challenge for the industry especially if revenue growth starts to stall. The US elections did not result in greater clarity coming from the political leadership on resolving the issue if budget cuts without resorting to sequestration and while sequestration was offset for two months at the beginning of 2013, there is still no clear resolution in sight. A potential future scenario could see legislation coming into play that offsets sequestration even further through to the end of 2013 (calendar-year). The two political parties will continue to engage in negotiations through the end of the calendar year and the industry will end up operating within essentially a “continuing resolution” framework.

In terms of rankings, Boeing and EADS continue to lead the pack over the 2007 to 2012 timeframe. Results to date coupled with estimates for the full year show that Boeing will pull away from EADS in 2012, driven by a significant ramp-up in the commercial aerospace segment.

While EADS closed the gap with Boeing over 2010 and 2009, the company has not been able to maintain growth in 2012 and preliminary estimates suggest that 2012 revenues will be flat to slightly down and not emulate the commercial aerospace success enjoyed by Boeing.

United Technologies is consistently in third position over the same timeframe with revenues growing over 2010-2011, but expected to flatten out in 2012.

The three companies above all have a mixed portfolio with commercial areas supplementing defense revenues. From a more defense-orientated perspective, Lockheed Martin generated over $47 billion maintaining an overall fourth position in the revenue rankings.

Other defense focused companies featuring in the top ten revenue rankings include BAE Systems, Northrop Grumman and Raytheon joined with Honeywell, Mitsubishi Heavy Industries and General Dynamics generating revenues that couple defense markets with other diverse portfolios.

The challenge for all companies active in the defense sector will be maintaining historically positive profit margins by targeting high growth sectors and international markets outside of US and Europe. While trailing the sampling of companies considered in this report in terms of revenues, Cobham has consistently been one of the more profitable companies and is forecast to lead the pack in 2012, with profit margins approaching 11%.

Raytheon is placed second in the profitability rankings for 2012 and has been a consistently profitable operation for the 2007-2012 timeframe. United Technologies is arguably the most consistent performer, holding a third position in terms of profitability as well as being ranked third in the revenue rankings for 2012.

While Boeing and EADS are expected to command first and second positions in terms of revenue rankings in 2012, both companies are estimated to fall outside the top ten profitability rankings for 2012 with Boeings profit margins averaging around 5% over the 2007-2012 timeframe. EADS profitability averages out at less than 1% for the same timeframe and is impacted by losses in 2007 and 2009.

Overall, the industry has managed to maintain both profitability and revenue growth even as defense budgets come under increasing pressure. Radar, communications and EW systems capabilities will increasingly be underpinned by advanced component technologies while the challenges of maintaining integrity in the network and protecting the users, platforms, systems and devices operating in a net-centric environment will provide fresh avenues of opportunity in 2013.

Clients of the ADS service can read the full reports.

Don’t miss our regular column in Microwave Journal’s Military Microwaves.

See Defence iQ for more analysis on the defense industry, related news and events.

Asif

In contrast to the positive swing observed at the end of the second quarter, revenue growth came to a standstill in the third quarter of 2012, with a snapshot of company results showing revenues largely flat quarter-to-quarter. For most companies, there was a common thread with revenue growth in one or two parts of a company’s business activity being counteracted by declines at other business units.

Despite the challenging quarter, early indicators suggest that the defense industry will show revenue growth in 2012 and profitability will also continue to be maintained. This is despite the uncertainties surrounding sequestration and the “fiscal cliff” in the US as well as budget uncertainties in European and other international markets.

Moving into 2013, maintaining profitability will be the challenge for the industry especially if revenue growth starts to stall. The US elections have not so far resulted in a definitive political solution from the leadership on sequestration or avoiding the “fiscal cliff”. There is however some positive rhetoric coming through and in our opinion it is highly unlikely that sequestration will actually be implemented in January 2013. The more likely scenario will see legislation coming into play that offsets sequestration possibly through to the end of 2013 (calendar-year) while the two political parties continue to engage in tit-for-tat negotiations through the end of the calendar year on the issues surrounding the “fiscal cliff” and sequestration. It does appear that the US defense budget is close to approval and the industry will end up operating within essentially a “continuing resolution” as far as sequestration is concerned.

For 2013, the defense industry will need to look towards developing and offering solutions based on next generation technologies and competencies in areas such as cyber.

RF technologies such as GaN, for example, offer a clear path towards upgrading radar, electronic warfare and communications systems capabilities. The use of these technologies in AESA radar for example underpinned a number of radar milestones in November including Raytheon meeting critical performance requirements to advance ongoing system integration on the Cobra Judy Replacement program.  Northrop Grumman completed its technology demonstration contract for the US Navy's Air and Missile Defense Radar (AMDR).

There is also continued momentum behind Directed Energy Weapons using either laser or RF/microwave technologies continue to be explored. MBDA Germany completed a further major step towards a laser weapon system with a high-energy laser demonstrator that demonstrated a complete deployment sequence in countering rockets, artillery and mortar shells (C-RAM). Using 40 kW of laser power, the laser demonstrator successfully acted on airborne targets at a range of over 2 km. A similar effort from Lockheed Martin Space Systems is the Area Defense Anti-Munitions (ADAM) system which demonstrated a portable, ground-based military laser system in a series of tests against representative airborne targets.

The challenges of maintaining integrity in the network and protecting the users, platforms, systems and devices operating in a net-centric environment will provide a fresh avenue of opportunity for those companies that can offer a comprehensive suite of cyber solutions in 2013. This will provide a driver for companies to acquire capabilities to bolster their cybersecurity offerings.

There were several announcements from RF component suppliers related to GaN technology including RFMD introducing a series of high-power GaN broadband power transistors (BPTs) and highly linear GaN RF unmatched power transistors. Meanwhile, TriQuint's 0.25-micron GaN on SiC TQGaN25 process demonstrated a MTTF of greater than 10 m hours at 200C. As with GaAs, Northrop Grumman has also been at the forefront of developing GaN technologies through DARPA and other military research programs maintaining an emphasis on the defense sector. The company is now starting to showcase its GaN technology for commercial availability (see Northrop Grumman Breaks from Pack with GaN Products Targeting Higher Frequency Markets) with the introduction of a series of GaN MMIC products. Offering higher frequency capabilities through to Q-band, Northrop Grumman is breaking away from a pack of competitors that have largely focused on products at the lower end of the frequency spectrum.  

Clients of the ADS service can read the full report Defense Electronics Industry Review: November 2012 which details significant defense industry news, including product announcements, milestones, contract activity and defense industry financial performance.

For 2013, the defense industry will need to look towards developing and offering solutions based on next generation technologies and competencies in areas such as cyber. Radar, communications and EW systems capabilities will increasingly be underpinned by advanced component technologies and these technologies will also form the basis for weapon systems. The challenges of maintaining integrity in the network and protecting the users, platforms, systems and devices operating in a net-centric environment will continue to provide a fresh avenue of opportunity.

Don’t miss our regular column in Microwave Journal’s Military Microwaves.

Asif

Eurosatory is held in Paris on a biannual basis with Eurosatory 2012 continuing to focus as an event centered on land and air platforms. The event boasted over 53,000 attendees and included a new focus on security this year including cyber. There were a range of technologies showcased at Eurosatory 2012 emphasizing the importance of enhancing capabilities and meeting the needs of SwaP-constrained platforms.

The growing use of COTS-based platforms was also highlighted by both DRS Technologies and Harris with the introduction of ruggedized, Military-grade Android-based handheld computer and tablet products. Elektrobit’s Counter-RCIED platform was demonstrated as a potential tool for convoy mission planning. Rohde & Schwarz was emphasizing the use of IP technologies for radio communication platforms. Finally, there was a range of radar technologies on show with Cassidian, FLIR and Camero showing solutions targeting applications from border surveillance to through-wall imaging.

IMS 2012 was held in Montreal, Canada for the first time in its 60 year history and a strong industrial program was complimented with a good mix of technical sessions and social events. While attendance was flat, there was an overall increase of around 40% year-on-year in the number of paper submissions.

Main themes that came out of the technical sessions centered on low cost millimeter-wave technologies based on Si CMOS. Terahertz technologies also continued to be a key topic with new concepts and a look towards integrated devices. Finally, nanotechnology was discussed in technical sessions with tunable devices including MEMS-based switches looking to commercial markets. Other areas of interest identified included energy harvesting, wireless energy transmission and the use of RF technologies in biomedical applications as well as the role RF will play in the “Internet of Everything”.

On the show floor, there was a positive atmosphere with companies focused on both commercial and defense markets. Strategy Analytics was also on the show floor to kick off a series of Richardson RFPD Supplier presentations where we outlined our thoughts on how GaN is becoming a pivotal technology in the defense sector. Strategy Analytics’ breakfast session at IMS 2012 was held in conjunction with Microwave Journal this year and included participation from Cree, Nitronex, NXP, RFMD, TriQuint and UMS with the presentations serving as a platform to confirm the applicability of GaN to addressing communications, electronic warfare, and radar applications.

The need for wideband communications including demand from the UAV and SATCOM sector at Ku-band and the need to address Ka-band requirements from SOTM, missile seekers and other communications applications is also driving opportunities for GaN device suppliers. However, while GaN technology hits a lot of the parameters being asked for by military system designers, other technologies including TWTs, LDMOS and SiC will also continue to play a role in future defense system design.

Finally, the Farnborough International Airshow 2012 took place in July acting as a conduit for the trade, with orders and commitments covering a total of 758 aircraft and worth $72 billion. More impressive, given the current economic uncertainty was the fact that the order value represented a 53 percent increase on 2010.

Attendance was equally impressive with just over 107,000 trade visitors and over 1500 exhibitors with representation right across the supply chain. Over 70 military delegations from 46 countries attended with a further 13 delegations from the civil sector. The UK Prime Minister opened the show, and other UK Cabinet members made keynote speeches, with other senior ministers visiting from the UK and overseas.

Over 140 aircraft took part in the static and flying displays at the Farnborough Aerodrome in Hampshire. While the Airbus A400M was unable to fly (again!) due to mechanical issues, the Airbus A380 was in attendance and other flying display highlights included the Korean T50 jet trainer, the Eurofighter Typhoon and the Saab Gripen Fighter.

Perhaps surprisingly, the continuing requirement for a range of technologies was emphasized during meetings at Farnborough. TMD Technologies was showcasing its S-band TWT solutions as well as highlighting the capabilities of the company’s X-band 8kW PAMs which can be combined with up to 12 units to enable land-based radar solutions and provide the graceful degradation typically associated with GaAs and GaN-based AESA systems. On the GaAs front, Plextek’s Blighter B400 FMCW/Doppler Ku-band PESA radar was being demonstrated and Eletronnica was also showcasing GaAs-based solutions with the Virgilius EW system which provides both ESM and jamming functionality based around an AESA RF front-end.

In conclusion, there were a range of technologies showcased at all the shows with radar, communications and electronic warfare capabilities and requirements driving demand for technologies that can enhance the capabilities of existing platforms as well as meet the ever growing need to optimize SWaP parameters across both existing and emerging platforms.

Clients of the ADS service can read the full reports on the Eurosatory, IMS and Farnborough shows:

Defense Technology Highlights from Eurosatory 2012

RF Technologies for Defense at IMS 2012 Centered on GaN

Satellites, UAVs, Radar and Travelling Wave Tubes at Farnborough 2012

Also, don’t miss our regular column in Microwave Journal’s Military Microwaves.

See Defence iQ for more analysis on the defense industry, related news and events.

Asif

Defending military assets from attacks generated through the digital cyber domain means that traditional battle domains – air, land, sea and space – now have a fifth operational category, cyber space. Defending this fifth domain is only going to become more important as military platforms and systems increasingly adopt net-centricity as a central tenet of operation.

Net-centricity is simply the continuing evolution for military operations in the IP domain and cyber-security will need to be woven into devices and networks. There will be a convergence of physical/RF and cyber exploits and cybersecurity will become a mainstay even as budget constraints impact other aspects of a program.

There are many aspects to cybersecurity and the multidimensional nature of the problem requires a range of capabilities and technologies. To cover these requirements, there are specialty companies that focus on specific elements as well as solution providers such as General Dynamics and 3eTI. Larger defense contractors such as Lockheed Martin, Northrop Grumman, Raytheon and Thales are also working hard to evolve their capabilities.

The Strategy Analytics Advanced Defense Systems (ADS) service report “Defending the Fifth Domain” explores the continuing move towards net-centricity and the implications of operating in the cyber domain for military operations. Other issues covered include IPv6 readiness, linking future cyber requirements with electronic warfare and identifying the core requirements for companies to be successful.

Clients of the ADS service can read the full report here

Also, don’t miss my monthly column in the Microwave Journal’s Military Microwaves.

See Defence iQ for more analysis on the defense industry, related news and events.

Asif