This week’s win of a major Air Force radar contract by Raytheon is the latest installment in what is beginning to look like a trend. The Massachusetts-based company is gradually displacing competitors once thought to be superior in technical talent and marketing acumen — potentially positioning itself as the dominant global player in defense electronics.
Last year it beat BAE Systems and Northrop Grumman for the contract to develop the Navy’s Next Generation Jammer, a hugely important program that could generate steady revenues for decades to come. Then it prevailed over Lockheed Martin and Northrop to build a new radar for the Navy’s Aegis combat system — the most sophisticated air and missile defense system in the world. Now it will build the Air Force’s next generation of mobile ground-based defensive radars, known as the Three-Dimensional Expeditionary Long-Range Radar program (3DELRR, or “Three Dealer”), once again beating out Lockheed and Northrop.
Raytheon isn’t winning every contest. Lockheed Martin won an important engineering contract on the Aegis system last year, and more recently prevailed in the Air Force’s competition to develop a network of ground-based overhead surveillance radars called the Space Fence — in both cases besting Raytheon. Nonetheless, the Massachusetts company seems to be taking market share in the midst of a defense downturn, and that trend is traceable to more than just aggressive bidding. Something has changed about the way in which Raytheon manages and markets its capabilities, both at home and abroad.
The gallium nitride technology incorporated into Raytheon’s 3DELRR offering is a good example of what I mean. It enables greater range and resolution at reduced cost, significantly enhancing search capabilities. Raytheon has been researching GaN technology (as it is called) for many years, and today can legitimately claim to be a world leader in its application. This is the kind of innovation that Pentagon policymakers say they need more of to keep ahead of potential adversaries, and Raytheon has spent a fair amount of its own money bringing the technology to fruition.
So maybe buying back a lot of shares isn’t the best way to deploy capital, even in a downturn. Beyond its demonstrated commitment to the domestic military customer, Raytheon has consistently outperformed its competitors in securing sales to overseas allies — generating over a quarter of sales this year from offshore sources. That too is a significant feat, given that many foreign countries have reduced outlays for military technology in recent years.
One facet of Raytheon that gets little mention in the news but may have a bearing on business success is its values-driven culture. It participates continuously in supporting veterans groups, science education, and community initiatives at the local level. How many other big corporations have gotten a perfect rating (100%) nine years in a row on the Human Rights Campaign corporate equality index for welcoming lesbian, gay, bisexual and transgendered people into their ranks? You can’t prove that being inclusive and community-minded had anything to do with Raytheon’s recent competitive wins, but I’m betting that happy, proud employees are better performers when the chips are down.
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