Harris Corp Focuses Heavily on International Markets in Q2
[Via Satellite 01-29-2014] Harris Corporation revealed a stronger focus on pursuing international customers during the company’s second quarter fiscal 2014 earnings call. Profits and sales were slightly down this quarter — a loss attributed mainly to the slowing of defense spending.
The company reported $1.22 billion in revenue for the quarter, and $137 million for income from continuing operations. Second quarter orders totaled $1.47 billion, down from $1.36 billion in the prior year. Revenue by year increased by $5 million for government communications systems, but decreased by $31 million in RF communications and $37 million in integrated network solutions.
While results varied across different markets, the company highlighted a growing focus on international markets as a source of both current and future revenue.
“We are pushing international very heavily,” said Bill Brown, president and CEO of Harris. “If you go back to fiscal 2010, our revenue coming from international sources as a percent of the total was around 10 percent. Last year was around 26 percent, and this year we expect it to be in the 29 percent range. We’re driving very hard [and] putting resources in place. We recently announced the appointment of a new president of our Brazil operations and we’re putting some resources there. We’re [also] pushing hard in the Middle East, and we see good growth in Asia.”
Much of this international growth came from tactical radio orders, including a $100 million contract from Australia. Other orders came from mentioned growth regions including a $49 million contract from an unspecified country in the Middle East, $36 million and $21 million orders from two NATO countries, and a $28 million contract from an unspecified country in Latin America. All of these new orders are multi-year programs and carry opportunities for follow-on purchases. Brazil, Mexico and Colombia were mentioned as future opportunities, along with Saudi Arabia and the United Arab Emirates.
Tactical communications sales experienced a 35 percent increase according to Brown, and he described the total revenue split as roughly 60 percent international, 40 percent U.S. Department of Defense (DoD). The reduction of U.S. activity in Iraq and Afghanistan contributed to this shifting dynamic. Tactical radio sales to the DoD were weaker than expected, but Harris has spotted new opportunities.
“In December, an official army notification came out that opened up to full competition and multi-vendered the HMS program,” said Brown. “We purposefully held back investment on that until that officially came out. We now will step up substantially in the back half on R&D investment. We’re in that business and we think we are going to be very competitive, and we’re going to invest to be competitive … the army’s tactical radio optimization remains a tremendous multi-billion dollar opportunity for Harris, and will also encourage that the Army’s plans are well funded in the budget.”
Brown also commented positively on the recent budget deal, saying it “mitigates a sequester burden and is a good first step toward more certainty in the government market.” Furthermore, he said Harris saw “no big surprises” at the funding level for DoD programs.
Still, the heavy focus remains on building international clients. The company has increased its investments in sales, and is looking to establish long-term contracts with customers outside of the U.S. to buoy the company during rough financial waters domestically. This strategy is based on the success with previous international contracts.
“Australia is a great example,” said Brown. “Our relationship with Australia spans over a decade, and orders to date have now exceeded half a billion dollars including the recent $100 million order for phase three of their modernization program. Typically once we become the tactical radio supplier of choice in a country, additional follow-on opportunities tend to flow to Harris.”