Higher Sales Deter Takeover of Harris Corp.

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WASHINGTON — Not much more than a year ago, communications company Harris Corp. faced speculation that it was a prime target for acquisition. Rumored potential buyers included General Dynamics and Northrop Grumman, and a potential price was put at $10 billion, according to media reports.

Harris eventually issued a statement saying it had been approached by potential bidders, but it was not considering a sale. The Wall Street Journal, the source of the story, quoted unnamed sources saying Harris was hoping to get higher offers than it received.

But with revenue more than doubling over the last six years, Harris’ size compared with its sometimes larger competition is less of a concern, said Howard Lance, the Melbourne, Fla., company’s chairman, president and chief executive officer.

“When I came to Harris and we were $1.8 billion in revenue, I think there were more concerns there,” Lance said. “Now that we’re five­plus billion in revenue, I don’t feel that we need someone else in order to give us enough scale to invest in our business, to hire and attract the right people, to reach the right customers.” Although Harris rejected all acquisition offers last year, it will evaluate any future approach in the same methodical and practical way, he said.

“The board carefully considered the approach and the verbal communications of interest and concluded at that time last May [2008] … it was not more compelling than what we thought we could do on a stand-alone basis,” Lance said. “We’re not disadvantaged because we’re a little smaller.”

Harris has grown from $1.88 billion in revenue in 2002, just before Lance joined the firm, to $5.01 billion for the year that ended July 3. The company gets a little less than half of its revenue from defense activities. Its Government Communications Systems segment, the largest of its three divisions with $2.7 billion in revenue, serves a wide range of customers, including defense and government intelligence agencies.

For the U.S. Defense Department, the Government Communications Systems division produces avionics and data links for military jets like the F-35, F-22 and F/A-18E/F, as well as satellite communications terminals and data networks for wireless communications. The division designs and tests the wireless transmission system architecture for the U.S. Army’s Warfighter Information Network-Tactical communications system, and it has produced wideband satellite communications terminals for the U.S. Navy’s DDG-51 Arleigh Burke destroyers.

Harris has two other divisions. RF Communications sells secure tactical radios and encryption systems used by militaries, and radios and wireless network infrastructure to public safety, utility and transportation customers. Broadcast Communications sells systems and services for broadcast television, cable TV and other telecommunications sectors.

Instead of being acquired, Harris has recently made its own acquisitions. Earlier this year, it bought three businesses: Tyco Electronics’ wireless systems business (formerly part of M/A-Com, the other half of which went to British company Cobham) for $665 million; and two smaller businesses — information technology firm Crucial Security, and the air traffic control business of Canadian firm SolaCom Technologies, for undisclosed prices.

It also sold its majority share of Stratex Networks, a wireless communications provider, earlier this year.

The acquisitions reflect where Harris sees the market for its products growing — in communications for police and fire departments, for example, and in cybersecurity.

“We saw the public safety communications market as having a lot in common with the military tactical communications market,” Lance said. “We’re taking that technology developed for our military customers and taking that down to public safety.” In particular, that will apply to radios, a big revenue driver for Harris. The company’s latest group of radios, the Falcon 3 family, is a set of multiband units that the RF Communications division developed to increase military interoperability. But the same need exists for local governments, Lance said. Multiband functions, for example, allow fire and police departments to use the same radio.

Harris sells its Falcon tactical radios to more than 100 countries and has sold 100,000 of its Falcon 3 AN/PRC-152(C) models in support of the Pentagon’s Joint Tactical Radio System (JTRS) program.

Another Falcon 3 model, the AN/PRC-117(G) man­pack, also could be a boon for Harris, said Michael French, an analyst with Morgan Joseph & Co., New York. “It doesn’t meet the full” Pentagon military specifications, French said, “but it costs a lot less. It’s sort of a commercial-off-the-shelf version of JTRS, if you will.” That it is cheaper than a fully conforming JTRS radio, and is available now, makes it “one of the more promising products for Harris,” he said. Though the three businesses acquired earlier this year might not immediately boost defense sales, they can help Harris position itself in markets likely to become even stronger, French said.

The buyout of Tyco Electronics’ wireless business will help Harris take on Motorola, a dominant competitor in the public safety market.

“Their plan is to take their expertise in developing products and some of the backbone-type networking capabilities they have and really chop away at that market,” French said.

Any future acquisitions by Harris are likely to be in the same vein, a move into markets that are starting to grow in big ways, such as cybersecurity and health care information technology, he said.

Lance also expressed interest in those two fields.

“The core elements of our strategy are to constantly be developing new technology­based products and capabilities that help to differentiate us from our competition,” he said, “whether it’s moving from a U.S. focus to a global focus, or whether it’s moving into these markets that are really taking the forefront now, such as cyberspace and health care IT.” Those markets, he said, “are going to be very large, and … allow us to build off of skills we’ve developed for existing customers.”