Harris Corporation (NYSE: HRS) provides communications and information technology systems and services to government and commercial companies in 150 countries. Harris operates through three segments: RF Communications segment, Government Communications Systems segment and Broadcast Communications segment. Because approximately three fourths of 2010 revenue came from the Federal Government, Harris' revenue growth depends heavily on government and defense spending budgets. In response to potentially declining defense spending, Harris has moved into other spaces through acquisitions.
Harris reported net income of $562 million on revenues of $5.2 billion in 2010, versus net income of $38 million of revenues of $5.0 billion in 2009. The Company reported higher revenues and improved margins due to sales of products from the the RF communications segment, which is the largest operating segment and boasts profit margins of around 30%. While not reflected in 2010 results, entries through acquisitions into the energy and health care markets have the potential of diversifying its customer based and leading to higher sales.
Over three quarters of 2010 revenues came from sales to the U.S. Government. As the U.S. debt increases, there are increasing budgetary pressures to cut spending in the future. In addition, the Obama administration has proposed wind downs of the wars in Afghanistan and Iraq, which have the potential of leading to further defense spending cuts. In fact, the pentagon has said that all spending is on the table for possible cuts. However, a key Harris strategy has been to provide products and services that help modernize defense and government systems. Harris has reported that receiving higher revenue from a number of strategic DoD communications programs as well as high global demand for sophisticated tactical radio solutions. Also, Harris has diversified its product and services offering through acquisitions in the energy and health care space. However, a long-term reduction in government and defense spending in the U.S. has the potential of hindering future revenue growth.
Harris operates is over 150 countries and derives a significant portion of revenues from products exported from the U.S. or manufactured and sold abroad. Because the economic, social and political conditions for business conducted outside the U.S. differs from those encountered by domestic businesses, Harris's international operations are particularly exposed to losses due to economic or political declines in these countries. In addition, heightened political instability in the Middle East and parts of Africa have the potential of preventing contract renewals and leading to currency instability. Despite the fact that no international customer composed more than three percent of 2010 revenues, Harris faces increased currency and political risk from the regional instability occurring in the Middle East.
Harris competes with several international communications and IT companies, especially those that focus on government contracts. However, budgetary pressures in the U.S. and a potential drop in defense spending have led many of Harris' competitors to expand into other growing industries and foreign markets.
Within Government Communications Systems, Harris competes with the following:
Within RF Communications, Harris competes with the following:
Within Broadcast Communications, Harris competes with the following: