[Via Satellite 11-03-2015] Harris Corporation is confident it will see growth in optical space systems through its recent acquisition of Exelis, providing an avenue for growth at a time when other markets face greater challenges. The company announced the acquisition of Exelis for $4.75 billion in February 2015, with the deal closing in May.
Exelis’ earth observation, weather and other satellite payload capabilities were folded into a new division now known as space and intelligence systems. Harris’ other three divisions, also announced at the beginning of fiscal 2016, are communication systems, electronic systems, and critical networks.
Harris’ space and intelligence systems division saw a decrease in revenue compared to pro forma fiscal year Q1 2015, with revenue dropping from $455 million to $435 million in the same quarter of 2016. William Brown, chairman, president and CEO of Harris, said Nov. 3 during the company’s Q1 2016 earnings call that this decrease was primarily due to the slowdown following the completion of the majority of Harris’ work on Aireon’s hosted payloads, not a slowdown in Exelis’ business. Harris is Aireon’s manufacturing partner for 81 hosted payloads to provide space-based Automatic Dependent Surveillance-Broadcast (ADS-B) for flight tracking, which is slated to launch with the Iridium Next constellation.
Aside from this nearing completion, Harris’ space and intelligence division gained $184 million in orders from classified customers primarily in support of space superiority missions and advanced sensors systems as well as $45 million from the U.S. Naval Research Laboratory for commercial antennas and ground communication system upgrades.
“The outlook in Rochester [N.Y.] for Exelis’ legacy imaging business is actually very strong,” said Sheldon Fox, senior vice president of integration and engineering at
Harris. “They’ve had an upturn in the number of new orders and new programs they have. They are hiring up there in Rochester, and they’ve developed some exciting new technologies that we believe have applications both in our traditional market spaces and in this new emerging commercial market imaging space. So we are very bullish on their imaging business in Rochester.”
Harris is anticipating flat to 2 percent growth in space and intelligence systems in fiscal year 2016, which is better than the company’s three other divisions. Communications systems is expected to drop by 2 to 3 percent, electronic systems is expected to shift in either direction by 1 percent, and critical networks is expected to decrease by 10 to 12 percent.
Weighing heavily on this outlook is the state of the energy market, where the low price of oil has impacted Harris CapRock.
“We expected that to be weak in the year. It’s going to be down on a full year basis mid-teens. In Q1 it was a little bit worse than that. We know that oil is still relatively weak. We saw the results from a lot of oil service companies and majors over the last quarter. Rig counts remain pretty weak, down about 40 percent year-over-year (YoY) and some of the oil majors and service companies are announcing more restructurings and capex cuts. So we do see continued pressure in that business. We are watching it very, very carefully. We think we have calibrated our year, but again, the market is pretty volatile at this point and we keep watching it,” said Brown.
The weaker government market has also posed a challenge to Harris’ critical networks division. Q1 2016 represented the company’s first full quarter of Exelis operations, and integration remains on track. Harris is targeting $70 to $75 million in synergy savings for this fiscal year. The company is confident Exelis will contribute to more growth in its space and intelligence division as it becomes a greater priority.
“We are refocusing on the intelligence community. We think we can differentiate ourselves in that space. Some of those awards are moving a little to the right, but I think that’s going to start to see some stability through the balance of the year, at least in terms of sequential growth,” said Brown.