Harris Corp. Rising as Tactical Radio Market Grows

Falcon II Multiband

After the bell last Thursday, Harris Corp. raised its revenue and per-share earnings forecast for fiscal year 2006, citing higher-than-expected orders for its Falcon II tactical radios. Harris said the U.S. military was moving toward deploying more mobile and self-sufficient units that rely on radios and that demand is rising in the Middle East, Central Asia, and Africa. Pakistan, for instance, awarded a $68 million contract for Falcon-II tactical multi-band radios in February 2005.

Meanwhile, new analysis from Frost & Sullivan’s “Aerospace and Defense Group, U.S. Tactical Military Communications Markets” reveals that Department of Defense (DoD) spending for tactical communications was $4.78 billion in 2004 and predicts $5.68 billion by 2010.

Frost & Sullivan notes that current military operations in Afghanistan and Iraq, and the transformation of the force structure to adopt the Network Centric Warfare (NCW) doctrine, is driving the U.S. to spend billions of dollars on digital tactical military communications (a fact DID has also noted in the past). Congressional and Pentagon focus is on filling immediate operational needs for ground forces fighting in Afghanistan and Iraq. Specific naval and air tactical communications will have secondary emphasis for the next few years, but platforms and technologies such as satellite communications, that have direct operational impact for small units of troops on the ground, are also a priority.

The military services require improved connectivity to increase situational awareness, allow for better command decisions, faster targeting, and increased efficiency. The tactical military communications industry is developing new technologies and sophisticated networked systems that enable soldiers and commanders to see the big operational picture and tighten the “sensor-to-shooter” kill chain. Integration work is required to ‘bridge’ existing radios and to incorporate new technologies as they come on line.

The U.S. armed forces are experiencing difficulties with tactical radio systems. Software Defined Radio (SDR), multi-layered access and security and long lasting lightweight power supplies are some of the technologies that have not progressed as quickly as planned. The Joint Tactical Radio System (JTRS) is not yet available and program schedules and funding have been delayed.

Meanwhile, current systems are also dying due to end-of-service life and intense operational use that speeds normal attrition. The increasing capability gap is being filled by replacing and upgrading current radios such as SINCGARS, and the purchase of interim radios with some SDR capability.

Frost & Sullivan believes that the resulting gap between current equipment and the budgetary and technological timeline for the next generation of SDR, presents a unique opportunity for firms to provide interim tactical radio and network solutions. Commercial Off The Shelf (COTS) solutions are often sought, because they save money and generally have open architectures that make integration with current and future systems easier.

These developments appear to be playing out in Harris Corp.’s favour to date. Chairman and CEO Howard L. Lance:

bq. “Orders and backlog in our RF tactical radio business continue to build. We have improved visibility into our next fiscal year, suggesting revenue growth will be significantly stronger than previously expected… We have increased our expectations for revenue growth in the RF Communications segment from 10% to 20%, compared to the prior year. Harris radios are supporting the U.S. military’s transformation into a more agile and modular force, and that transformation has accelerated.”

Harris had previously forecast $1.63 to $1.68 a share in earnings with revenue growth of 8% to 10%. The communications technology company now expects to post earnings of $1.73 to $1.78 a share on revenue growth of more than 10%. The Melbourne, FL-based company also reaffirmed its 2005 forecast for earnings of $1.45 to $1.50 a share, which excludes costs of 5 cents a share associated with the November purchase of Encoda Systems. With analysts believing that the tactical radio boom will continue to help Harris’s government-focused businesses outperform, the stock [NYSE: HRS] jumped 11.9% to $31.60 in Friday trading.

Update

January 10/2017: Harris Corp. has received a $403 million contract to provide spare parts to support various tactical radio systems for the US Defense Logistics Agency. The five-year agreement covers services for radios to be used by both the Defense Logistics Agency and the US Army. Harris has a variety of tactical radio systems in their catalogue, including systems with airborne, vehicular, and handheld applications. According to the company, the products are ideal for delivering high-speed voice, data and full-motion videos.

Additional Readings and Sources

* Minyanville (Feb 4/08) – Confident to the Point of Concern For Harris. Following some very good results posted in an earnings call. Is Harris changing its business model, as well as its results?

* MarketWatch (June 10/05) – Harris shares jump on higher forecast: Demand for tactical radios grows with changing military

* Harris Corp. – Tactical Radio Communication

* Frost & Sullivan, via Businesswire (June 6/05) – Pentagon Focuses on Ground Radio

* DID (May 16/05) – Israel Aims for Net-Centric Warfare With The Tsayad Program

* DID (May 16/05) – JTRS Costs Rising Rapidly

* DID (April 28/05)- Jittery Over JTRS, Pentagon Puts Boeing on Notice

* DID (March 9/05) – House Committees Paying Special Attention to Communications

* Business News Onlypunjab.com (Feb 14/05) – Pak to Get Falcon II Radios to Track Jihadis: Islamabad

* Special Operations Technology (May 25, 2003) – An Interview With Kevin Kane, Director of Business Development, Harris Corp. RF Communications Division