Faced with a flat defense market and thwarted in its most recent attempt to grow by merger, Lockheed Martin Corp. said yesterday that it is forming a subsidiary to tap into the bustling commercial telecommunications services field.
Lockheed Martin Global Telecommunications, the subsidiary, announced its first venture, a partnership with General Electric Co. for a satellite network serving markets in Asia.
Long a builder and launcher of satellites, Lockheed Martin has concluded that the real money is in owning the spacecraft and leasing its services. The company plans to build a global network of satellites that could offer large corporations such services as video conferencing and high-speed Internet hookups.
Global Telecommunications will start with revenue of just over $100 million and should grow to the "multibillion-dollar range" within five years, said John V. Sponyoe, who will be chief executive officer.
The unit, which will wrap up business from throughout Lockheed Martin, will be situated at corporate headquarters in Bethesda. With its first satellites set for launch next year, Global Telecommunications will also look to acquisitions as a way to expand the business, Sponyoe said.
A clue to the importance the company attaches to the venture can be found in its choice of top assistants for Sponyoe, who has been working in the company's electronics sector. Corporate strategist Brian D. Dailey will be chief operating officer, and corporate financial strategist John E. Montague will be chief financial officer. Both have been charting Lockheed Martin's course in terms of mergers and lines of business.
Pointing out that the global telecommunications market is projected to grow to $120 billion from $50 billion in the next four years, Sponyoe said the new subsidiary will be a "significant" contributor to Lockheed Martin's profit. Lockheed has annual sales of about $28 billion.
"I think it will be a very large contributor, not only in revenues but, as importantly, in the profit and shareholder value of the corporation in the next 10 years," Sponyoe said during a joint interview with Dailey.
"And, if not, there will be someone other than Brian and me talking to you then."
The effort puts Lockheed Martin on a course blazed by Loral Space and Communications Ltd. and Hughes Space and Communications Co., defense companies that capitalized on their space expertise to branch out into the lucrative commercial field.
Loral and Hughes sold off their defense businesses when they made the switch.
Defense companies have been notoriously poor at diversifying into the commercial realm. Lockheed Martin President and Chief Operating Officer Peter Teets has warned in speeches about the related pratfalls.
But this time is different, the company says, partly because the management team has experience in the field. Another reason this venture is viewed differently is that, for a company that specializes in military programs, space hardware and large systems integration, there are few markets left for expansion.
Lockheed Martin has been growing for years by buying competitors, but last month the Justice Department and the Pentagon refused to drop their opposition to the company's attempt to buy Northrop Grumman Corp. for $11 billion.
"I think Lockheed Martin is correct to identify [telecommunications services] as a market they should be in," said Stuart McCutchan, editor of the newsletter Defense Mergers & Acquisitions. "This ties in well with what they are doing, follows the path that Loral and Hughes are following successfully and gets them out of the dead-end they've been placed in by the Justice Department."
Global Telecommunications will include parts of several Lockheed Martin business units that do commercial communications work, along with Intersputnik -- a satellite network planned for markets in Russia, India and other areas that has scheduled its first launch for January -- and Astrolink, a planned global communications network.
The joint venture with GE is an equal partnership that is to create a satellite system offering television, wide-band Internet access and other services to markets in Asia. The GE partnership plans to launch its first satellite next July.
Lockheed shares fell 62.5 cents to $95.75 yesterday.
Pub Date: 8/12/98