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ITT Continues to Make Money Off of Legacy Radio

by: Matthew Potter
June 6, 2011

Category: Business Line, Companies, Contract Additions, Contract Awards, Department of Defense, Events, Federal Budget Process, IT, ITT Corporation, logistics, production program, Restructuring, Services, U.S. Air Force, U.S. Army, U.S. Marine Corps, U.S. Navy | RSS 2.0

Defense contractors are able to make money off a great deal of different products and in different ways. They provide a variety of services and products that range from sweeping floors, to food and fuel, to developing and producing weapon systems as lowly as a truck to an advanced spy satellite as well as the conducting testing and research on advanced technologies. The defense budget is over $600 billion and provides many ways for a company to sell to the Government.

In a best case a contractor can make a product that the U.S. military will use for several years and require in large numbers. That is true for ITT Corporation (ITT) which since the late Eighties has been responsible for producing the standard tactical, VHF radio for the U.S. and many of its Allies. The Single Channel Ground and Airborne Radio System (SINCGARS) has been made in the tens of thousands and been put in pretty much every conceivable platform used by the U.S. This ranges from man portable systems to vehicles, ships and aircraft. The company has produced thousands of the radio for many different customers.

Since the late Nineties the U.S. has been working on a replacement, more advanced radio called the Joint Tactical Radio System (JTRS). The program has seen its ups and downs as it tries to develop a system that offers secure, broadband experience to the military. The JTRS radio will be programmable allowing it to change capabilities and bands without changing its hardware. This when it goes into use will be a significant enhancement over the SINCGARS and other radios. What this means for ITT is that they will no longer be the number one radio provider for the U.S. military as Boeing (BA), General Dynamics (GD) and other companies have been more involved in the JTRS program.

In fact in 2009 the U.S. announced that it was awarding the last production contract for the system and ITT has already begun restructuring its workforce. Unless they find an overseas market for the product or are able to get involved in JTRS production once that really ramps up the company will see one of its major product lines slowly go away as it is replaced by the newer, more advanced radio.

That does not mean though that the U.S. will not continue at least in the near term to buy services and products for the existing radios from ITT. They were just awarded a contract to provide some more radios, support equipment, spares and services to the existing user base. This contract modification is worth almost $600 million and shows that it will be several more years before the SINCGARS is gone. (http://www.defenseindustrydaily.com/2011-06-ITT-Gets-569M-SINCGARS-Radio-Order-06899/)

ITT Corporation, which in the early Nineties split into three companies from the parent ITT Industries, has now announced a further split. ITT’s defense assets will be set up as a separate company. This move was supposedly motivated by the low levels of growth demonstrated by defense when compared to the fluid and electronics parts of the company. ITT Corporation now dominates the world’s pump and water industry and has seen significant growth in that business area. (http://blogs.forbes.com/afontevecchia/2011/01/12/itts-split-up-an-attempt-to-shake-off-defense-units-anchor-on-growth/) The loss of the SINCGARS work will only reinforce this issue and there are many experts who feel that the ITT defense company will be bought or merge with another defense contractor rather quickly after the split.

The direction that ITT stock will take after the split will be interesting for investors. Currently the stock is at just under $56 and has been trading in a range of $42 – $64 for the past year. (http://www.google.com/finance?client=ob&q=NYSE:ITT) In 2007 it was over $70 but that has been the recent peak. The board must feel that jettisoning the defense work will aid their stock in the long run but it does not offer a vote of confidence in that sector or their defense business unit.

Photo courtesy of Ryan Somma flickr photostream.

Article first published as ITT Continues to Make Money Off of Legacy Radio but Defene Business Future Hazy on Technorati.

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One Comments

  1. ITT Exelis Lays Offs Workers As SINGCARS Production Ends | Defense Procurement News on November 17th, 2011 3:37 am

    […] Joint Tactical Radio System (JTRS) comes into production as well as other new systems. In June ITT received a contract to provide engineering support for the system as it will remain in service for several more […]

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