Strengths and Weaknesses in a Publicly Traded Company

It will be difficult to continue making significant economic strides unless the strengths and shortcomings of Lockheed Martin Corporation are resolved. Furthermore, making the challenges transparent would aid in dealing with the market's current rivalry and increasing revenue.
Introduction to the Lockheed Martin Corporation and how it was formed, beginning with the Wright brothers and ending with the well-known merger with Martin Marietta.
The Lockheed Corporation's capabilities in being a well-known enterprise in the aviation and defense industries.
a) Global Leader in Defense-Related Products and Services
b) Existence of a variety of strong products portfolio
c) Innovative Research and Development
d) Lockheed Martin is strong financially
e) Customer base is small but stable

III. The weaknesses of the Lockheed Martin Corporation in dealing with the present

Challenges including the stiff competition in the market.

a) High dependence on US government for revenue and projects

b) Quality Control

c) Low Price Approach

d) Contract misconduct

e) Restrictions and regulations

IV. The conclusion is discussing the way forward for the Lockheed Martin Corporation and the potential factors that will lead them to achieve their set targets.

Introduction

Leonardo da Vinci first invented the concept of flying aircrafts centuries ago by drawing pictures and blueprints that would be presently used in studying aviation. However, the evolution of aviation had started a long time ago. Since then, aircrafts of different kinds have littered the plane market. Moreover, it is evident that there is no doubt in aviation’s history being part of the development of humankind.

To affirm the history of aviation, the Wright brothers also started test flights back in Ohio. Since then, America saw great potential in the aircraft industry and has drastically advanced every day. Additionally, the company was able to solve issues such as the sound barrier that had made the industry to lag behind. Today, flying through the air feels like the simplest action of trajectory, but in the real sense, it was just a dream of a primitive man. Due to the advanced inventions and developments, the Lockheed Corporation was formed (Catech, 2008).

In March 1995 Lockheed Martin was established after the merger between the Lockheed Corporation and Martin Marietta. Lockheed Corporation (Formerly Loughead Aircraft Manufacturing Company) was established in 1912 by brothers Allan and Malcom Loughead. Martin Marietta was a Chemical Aerospace and Electronics Company established in 1961 through the merger of Glen L Martin Company and American Marietta Corporation (Martin Marietta).

Presently, Lockheed Martin is globally known for aerospace, defense, energy, Space and advanced technologies services. In addition, it’s the global leader in defense-related products. Lockheed businesses interests include missiles and fire control systems, rotary and mission systems, space and aeronautics (Lockheed Martin, 2017). The company is also a provider of cyber security, management, scientific, engineering, logistics and systems integration services. The company’s principal customers are agencies of the U.S. Government and the company engages the agencies either as a prime contractor or a subcontractor (Lockheed Martin 2017). The company has currently about 97,000 employees with 92% based in the United States. Lockheed Martin is a publicly traded company with its headquarters in Bethesda Maryland.

Lockheed Martin Corporation has have proudly served the American nation for over 100 years. The company’s aviation and space systems enabled Amelia Earhart fly solo over the Atlantic, launched John Glenn into space, transmitted Neil Armstrong's famous words and continued to protect U .S troops and allies. The company’s satellites are always monitoring global environment keeping an eye on the world and expanding our knowledge of the universe. As the world leader in complex secure and mission critical systems Lockheed Martin is now applying their expertise in enterprise utilities command and control through legacy experience in command and control operations, situational awareness and multiple systems integration.

Strengths of Lockheed Martin

Global Leader in Defense-Related Products and Services

In terms of revenue Lockheed Martin is the world’s biggest defense contractor with 71% of its revenue coming from the U.S. Government. On June 19, 2017, Reuters reported that Lockheed Martin was about to close a deal worth $37 billion with the US and ten other countries for the sale of four hundred and forty-four F-35 Joint strike fighters. This makes the F-35 the highest profile product that the company produces. The plane is said to be the world’s only 5th generation multi-variant and multi-role fighter plane. By the end of August 2017, the company had won bids valued at over $427 million from the U.S. government (Best). 

Achieving the future is a dream of every multinational company, and Lockheed Martin is no exception. This is a company that tries to solve the present issues through innovation and invention of an advanced generation. Just like the way no one knows what is going to be there tomorrow, Lockheed Martin works day and night to ensure that they keep a constant notch on innovation to keep up with the present timeline.

With the 2015 acquisition of Sikorsky for $ 9.0 billion, Lockheed Martin is adding additional value to their customers by providing turnkey solutions to their customers aviation needs.

The Existence of a variety of strong product portfolio.

Lockheed Martin’s primary focus is on the research, design, development, manufacture, integration, and servicing of advanced technology products, systems, and solutions. Lockheed Martin operates in three core markets which include defense and intelligence, homeland security and information technology. Lockheed Martin is organized through a market-based structure, with four operating divisions producing unique products or services. The four divisions are Aerospace and defense, Emerging Technologies; Space, and Energy (Benusa 1). This makes the company gain a more competitive edge over its competitors.

Lockheed Martin’s has a wide range of businesses that operate in different market segments and $96.2 billion backlogs will reduce the impact of budgetary cuts on the company’s revenue in the future (Lockheed). It is expected that Lockheed Martin will convert $34.0 billion, which represents 35%, of the year 2016’s backlog into sales in 2017 (Lockheed Martin 2017).

Today, Lockheed stands at an outperforming rate. Many analysts still believe that the corporation can maintain its current status and improve on defense department products budget. Their portfolio almost covers all the areas and is still benefitting from aeronautics and fire control a few to mention.

It is also wise to note that Lockheed Martin generates at least 60 percent of its revenue from F-35. If the same trend is followed in the coming years, this percentage is expected to double up by 2020. In addition to the work that the company does with the Department of Defense, the company also has contracts with the National Security Agency (NSA), Department of Agriculture, Census Bureau, Department of Energy, Environmental Protection Agency, Postal Service, Central Intelligence Agency, The Pentagon and the Internal Revenue Service.

Innovative Research and Development

Historically Lockheed Martin has set standards for innovation and advancement. The company’s strategy is to focus on long term customer requirements and how the company can incorporate emerging technologies leading to investment in high potential areas such as autonomy, directed energy and hypersonic. Innovation techniques are also being applied to reduce the costs and hence addressing customer’s current and future needs (Lockheed Martin).

During the most recent quarter, revenue in Lockheed Martin's aeronautics business its biggest segment rose 23% to $5.41 billion on higher F-35 sales. Meanwhile, revenue in its mission systems segment increased by 36% thanks to the addition of helicopter maker Sikorsky Corp (Minaya).

Technological expertise is Lockheed Martin’s strong point. The company is the number one Information technology provider to the U.S. government. Lockheed Martin is at a unique position when it comes to combat aircrafts. This will make the company to potentially dominate future sales of fighter planes globally. The company has the world leading range of fighter programs being the main contractor for the F-35 Joint Strike Fighter in addition to the F-16 and the F-22 fighters programs (Finnegan).



The culture of innovation at the company has lead the company to venture into new lines of business. Together with Kampachi farms and Illinois soybean association, the company has ventured into aquaculture developing a mobile fish pen that communicates via satellite as it moves across the ocean carried by ocean currents. Voted as one of Time’s magazine top 25 inventions of the year 2012, the innovation solves the problem of overcrowding experienced by conventional commercial fish farms (Lockheed Martin 2013).



Consequently, Lockheed Martin actively supports innovative research in small businesses. SBIR and STTR are federal programs which mainly deal with funding of small businesses for the purpose of research and develop emerging technologies. In this case, Lockheed Martin stretches its hand in support of these programs.

In Huntsville, the corporation supports growing technology for defense. The location stands out as a marketplace which deals with the provision of technical guidance and mentors to support emerging technologies. Moreover, the company has developed matching technologies which adequately support the programs need.





Lockheed Martin is strong financially

In 2016 Lockheed Martin delivered a total of $47.2 billion in sales, an increase of 17 percent compared to 2015. This translated to an operating profit of $5.1 billion. Total earnings per share of $12.38 was realized, for the year 2016. Lockheed Martin’s customers ordered a total of $46.9 billion worth of products and services hence closing 2016 with a backlog totaling to $96.2 billion. Net income amounting to $5.3 billion was realized and operational cash amounting to $5.2 billion was achieved for the year 2016 (Lockheed Martin 2017). The company’s total assets stood at $47.806 billion ranking it at position 152 of the world’s biggest companies.

Financial capability is not only a matter of revenue but also cost savings that have been made over a given period. Lockheed Martin has been able to reduce the production and sustainment costs of its premier F-35 joint strike fighter program. The cost reduction effort is also available on Lockheed Martin’s space systems through outstanding performance hence programs coming below costs translating into savings to the customer. The company continues to work towards its goal of 35% lower costs and 25% faster deliveries (Lockheed Martin 2017).

The company has continued to deliver strong financial results over the years overcoming the budgetary pressure experienced by their customers. Through ingenuity Lockheed Martin has delivered results in the tough business environment, they were able to increase sales in 2016, improve efficiency, maintain a positive profit growth, and grow their strong backlog. Homeland security focus by the U.S. government will increase opportunities for business in cargo security, air traffic management, biohazard detection among other security functions (DB Hoover).

Customer base is small but stable

71% of the company’s 2016 $47.2 billion net sales came from the U.S. Government. This was through the company’s role as the main contractor or as a subcontractor in its various engagements with the company. 59% of the net sales came from the Department of Defense alone. International customers made up 27% of the net sales. This is inclusive of the foreign military sale. U.S. commercial and other customers had a share of 2% of the net sales (Lockheed Martin 2017).

With the current threat of terrorism and other security challenges in the world, governments will continue to procure Lockheed Martin’s products and services ensuring a dependable revenue stream for the foreseeable future.

Nearly half of the March 2017 supplemental defense budget proposal by the US government will go to buy and modernize warplanes, warships, and missiles. From this budget Lockheed will deliver more F-35 joint strike fighter planes, THAAD missile defense systems and Black Hawk helicopters (Stone).

The company is positioning its self on the long term profitable growth with focus on interoperability of systems among allies which will increase the demand of Lockheed Martin product in the markets that it operates in. The F-35 is the product that provides the largest growth area for this approach as the company target to have 50% of all new orders will come from international customers. Other targeted areas of growth include missile defense systems, the C130 super Hercules program and the Sikorsky rotary wing program (Lockheed Martin 2017).

The current geopolitical dynamics has led to an increase in demand of Lockheed Martin’s technology and weapon systems. Several countries including The Republic of Korea, The United Arab Emirates, The Kingdom of Saudi Arabia, Qatar and Taiwan have acquired missile interceptors and associated equipment. Customers have continued to show their trust in Lockheed Martin’s technology and capability. Case in point, The U.S military and allied forces demonstrated their faith in the company by entrusting the upgrade of their missile defense systems at a cost of $1.45 billion (Lockheed Martin 2017).







Weaknesses

High dependence on US government for revenue and projects

Lockheed Martin heavily relies on US government contracts. The US fiscal deficit will cause these contracts to be under pressure in the coming years. The fiscal deficit makes high-cost programs such as the F-35 joint strike fighter program targets for budget cutting. Lockheed Martin’s military business has been under pressure from the budget cuts though this is not a situation that unique to the company. Other companies are also experiencing the same in their commercial launch and satellite operations (Finnegan).

Government contracts are very unpredictable and are dependent on the political situation at a given time. These contracts are generally massive, which influences business development and future strategy planning. In February of 2017, Lockheed Martin lowered the price of the F-35 fighter plane after facing political pressure to reduce the price (Drew).

Lockheed Martin relies heavily on spending by the U.S. Government. In 2016, 71% of the company’s revenue came from the U.S. Government. Although many of Lockheed Martin’s engagements with the U.S. Government span over many years, many are dependent on the availability of congressional approvals which occur on an annual fiscal-year basis (Benusa 10).Potential revenue growth is likely to be affected by the budget cuts over foreseeable future, and this could result in cancellation of programs that are important to the company (Benusa 11).

The company is experiencing uncertainty after the newly elected administration has openly criticized the F-35 and other high value programs. The administration has expressed concerns over the cost of the project and has gone as far as asking a competing company to price an alternative. The company has tried to address this by having a meeting with the president and offering further price cuts but this may not guarantee that the pressure to cut costs will relent.

Quality Control

With the company’s business environment characterized by increased economic pressures and complex security challenges, a significant component of the company’s strategy is to improve on quality of products and services. The company has endeavored to develop their products ins disciplined manner with a focus on safety and quality. The company is also investing in new technology and its people ensuring safe development and operation of the its products and services

Lockheed Martin’s operates in an environment where products have zero margin for error. The quality of products is very important in the defense industry. Currently, the company is well respected within the defense industry for its internal quality control systems. However, these systems have been developed over time since a series of failures destroyed $4 billion worth of equipment which indirectly caused the reduction of annual profits by 66% in the year 1999. Poor management and quality control failure was determined to be the cause of these failures. These failures also triggered a restructuring process which culminated in the sale of many none core operations (DB Hoovers).



Low Price Approach

Lockheed Martin operates in a business environment where business agreements are awarded through a tendering and price being a major determinant. At the moment many governments are reducing defense spending due to budgetary pressures and in turn they put pressure on defense contractors to reduce their costs. The diversity of Lockheed Martin through its many subsidiaries allows the company to have a shield from the budget cuts. Though they may have slight protection from the budget cuts, the level of current and future budget cuts may negatively affect the running of the business in the coming years (Benusa 10).

The company is experiencing increased competition and at the same time the company’s customers are experiencing budget cuts. The customers are forced to do more with less by identifying more affordable solutions, reducing development cycles and increasingly doing tasks that they would traditionally hire a contractor internally. Some of Lockheed Martin international competitors are provided with development and research assistance on top of market subsidies by their government a privilege that the company does not enjoy.

Additionally, expansion of interest in space through growth could make the federal government spend more in the space industry. In this case, Lockheed Martin must budget on replacement of satellites in the coming future. In addition to this, services such as navigation and targeting will be easily handled with a well-established budget.

Contract misconduct

According to the Project on Government Oversite (POGO), Lockheed Martin has had eighty-four instances of misconduct since 1995. The contractual misconduct has seen them paying a total of $812.9 Million in penalties. They also currently have five instances of misconduct pending resolution (POGO).

Contract misconduct eats into the company’s profitability and may also tarnish the reputation of the company. This may also lead to having them bared from future government business. Having the high number of violations like they have had since 1995 may allude to a weak corporate governance structure at Lockheed Martin.

The company may be affected by the outcome of the ongoing legal proceedings that cannot be predicted with certainty (Lockheed Martin 2017). The company is required to estimate loss contingencies and establish reserves based on the assessment of the contingency where liability is more probable. The estimate may prove to be inaccurate establishing significant risk of loss when we have subsequent developments in the legal proceedings.

Restrictions and Regulations

Having realized that the U.S. Government is constrained of resources, Lockheed Martin is looking grow its customer base with a bias on foreign governments to meet their needs of aeronautics and other products and services that the company offers. However being a U.S based company working in the defense industry, regulations restricts the sale of their products and services to foreign governments even those that are U.S allies. This reduces potential business growth making the company reliant on the U.S government (Benusa 11). Not only can’t they sell, but other nations such as South Korea need approval from the U.S Congress to sell their F-22s which is US-made.

The nature of contracts that Lockheed Martin has with the U.S. Government are structured in such a way that the Government may terminate any of the contract or subcontract at its convenience or by default based on the company’s agenda. Given that the contracts are usually of high financial value, a termination arising from default may make the company liable which will affect the company’s ability to execute future contracts and orders (Lockheed Martin, 2016). The Government may also terminate the prime contractor under which the company is working under as a subcontractor regardless of the quality of work the company has delivered.

Conclusion

The Lockheed Martin Corporation has birthed a culture of quality not relenting in their operation excellence by using the most accepted practices while maintaining its industry standards. The Corporation has invested in approach tools, techniques, and resources to ensure that their output is of great quality and acceptable in the present market. Additionally, the corporation is also investing in an assurance system that is proven. This system has its standards set on international organization and methodology. There’s also a presence of proven assurance services and products which satisfy the contract requirements.

Financial analysts continue to forecast an increase in earnings per share for the coming years. $13, $14.35 and $16 have been projected for the years 2017, 2018 and 2019 respectively. Financial services firm Stifel Nicolaus and Buckingham give a buy recommendation for the company’s stock while Credit Suisse maintains a neutral recommendation (Rexaline 2016).

The company embraces and implements both lean and six-sigma improvement tools as a way of steering processes and eliminating waste. Through this, they have managed to achieve success in the process control explaining their unending success. Operating excellence from the six-sigma improvement has brought impressive results since the launch in 1999 (Marx). The big question that remains is “where will Lockheed be in the coming years?”

In response to that, the Lockheed Martin Corporation focusses on working on the F-35 Lightning II stealth fighter jet. There’s an urgent need in the market for these fighters. Nevertheless, the corporation needs to build them cheaply and win more contracts. If the company manages to achieve this milestone, this fighter can account for 50% of the Lockheed annual sales and achieve a great profit margin (Smith, DiLallo and Galas 2015).













Works cited

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