Source: Forbes, Tech | Steve Morgan | December 4, 2015
Lockheed Martin Corp. has been planning to sell off or spin off its roughly $4 billion government information technology business since earlier this year. That would include its Cybersecurity unit. ”The cyber programs that will remain with the company are mostly focused on defense and intelligence customers and will be realigned into the Corporation’s other four business segments” says Dan Nelson, Vice President, Corporation Communications at Lockheed.
Deltek’s annual forecast report, “Federal Information Technology Market, 2015-2020,” predicts a slight decline in the federal IT market from $97.7 billion in FY 2015 to $94.4 billion in FY 2020. Although IT spending will remain relatively flat over the forecast period, Deltek expects growth opportunities in key areas such as cloud, cybersecurity, big data and infrastructure modernization.
The U.S. federal government has spent $100 billion on cybersecurity over the past decade, and President Obama has $14 billion budgeted for cybersecurity in 2016.
More broadly, the worldwide cybersecurity market is expected to reach $170 billion by 2020. U.S. corporations are increasingly looking to defense contractors of all sizes who bring ex-government hackers to help defend against the growing cybercrime epidemic.
These numbers would seem to suggest a big opportunity in cyber for Lockheed, which has been the top provider of Information technology services to the U.S. government for the past 20 years… and defending critical infrastructures worldwide against cyber threats for over a decade.
Lockheed has excellent relationships with the senior executives who watch over the largest U.S. federal agencies which are ratcheting up their cyber budgets. In an effort to combat the growing threat of cybercrime, the U.S. Department of Homeland Security (DHS) increased its cybersecurity budget 500% during the past two years.
Lockheed announced plans this past September to lay off about 500 people across its information systems and government services division. The defense contractor might have thought about cross-training those IT folks on cybersecurity which they could have parlayed into an opportunity – in both the private and public sectors. There’s a severe cybersecurity labor shortage and cyber workers are in high demand with federal agencies and corporations willing to pay a premium for such talent.
So, what gives? Helicopters… and combat jets. A couple of months before Lockheed announced the IT layoffs, they announced their intentions to buy Sikorsky Aircraft, a unit of United Technologies UTX +1.05% Corp for $9 billion. The deal closed early last month. Dan Schultz was named president of Sikorsky, a Lockheed Martin Company. “Dan is a former Marine helicopter pilot and has decades of experience in the rotary-wing segment, including leading Lockheed Martin’s helicopter system integration business,” stated Marillyn Hewson, Lockheed’s chairman, president and CEO. Lockheed is well known for its F-35 fighter jets, and now they pick up Sikorsky’s Black Hawk helicopter.
To put all this in perspective, you have to consider the numbers – as Lockheed certainly must have – around IT, cybersecurity, and how that stacks up to aviation weapon making. Then you begin to understand how Lockheed can justify what appears to be an exit from their cybersecurity business.
Lockheed’s annual revenue last year (2014) was over $45 billion. According to an article in The Wall Street Journal,Sikorsky just won over $900 million in contracts from the Pentagon – roughly 25% the size of Lockheed’s entire government IT services business… a business that can easily become a rounding error as Lockheed continues to ramp its new Sikorsky business.
“The main factors driving the spin-off or sale of our IT and technical services businesses are changing market dynamics, shifting government priorities, increased competition and industry trends that have led us to believe that these businesses may achieve greater growth, and create more value for our customers by operating outside of Lockheed Martin” adds Nelson.
The Lockheed cyber business is a valuable asset, perhaps more so than any other part of the government IT services business. Lockheed cyber has thousands of customers which goes well beyond government agencies and includes financial services, chemicals, healthcare, oil and gas, utilities, and others. Perhaps IBM Security or one of the other major cybersecurity vendors will come calling on Lockheed for their cyber unit.