Some of Lockheed Martin's operating units are expected to consider select, small acquisitions in the coming months, ending what has effectively been a freeze on such activities over the past 18 months as the company sought to bring down its debt.

"We are back in the mode of looking," says Robert Coutts, Lockheed Martin's executive VP in charge of the Systems Integration division. Coutts plans to survey potential targets during the coming months and may be ready to execute a deal as early as next year.

Potential purchases are being described as "small strategic opportunities," he noted, and would likely be valued well under $100 million. That is roughly in line with recent comments by Lockheed Martin chairman and CEO Vance Coffman, who said his emphasis remains on paying down debt and that there are no plans for a buying spree.

Coutts laid out the structure and trends of the business unit he oversees, particularly as it will evolve once the sale of Lockheed Martins' control and aerospace electronic systems businesses to BAE Systems is completed. That sale, which was disclosed only this month, is expected to close by the end of the year unless regulators object.

Anticipated growth in Systems Integration is expected to offset any sales losses incurred by the divestiture. The unit had $10.5 billion in sales in 1999, and will maintain roughly that level this year. Coutts expects sales to grow to $12 billion by 2005. He is hoping to achieve annual growth rates in excess of 5-6%.

As the division, which includes the electronic platforms integration, missiles and fire control, command, control and simulation and naval electronics and surveillance system units, evolves, it is expected to do an increasing amount of commercial work. While U.S. military work once dominated at 60%, the balance between military and commercial/civil is expected to reach parity by 2005. Pentagon work has already declined to 55%.

A further evolution is from a hardware house to a systems integration center. In 1996, 50% of sales came from hardware items, 30% from weapons, and 20% from integration. That is expected to shift to 55-60% for integration work, 25-30% for weapons, and only 15-20% for hardware.

The divestiture will also reduce the size of the Systems Integration unit. Personnel will decline from 37,000 to 31,000 and primary locations will be reduced from eight to six.

One of the strongest parts of the unit's work is expected to be the commercial logistics management work Lockheed Martin is undertaking, Coutts said, because of the growth in electronic commerce. The American toy company, Toys-R-Us, for example, early this year asked Lockheed Martin to help it improve the distribution system for its e-commerce arm to ensure it can meet delivery requirements at Christmas. "That is probably the highest growth business," he said.

By Robert Wall