"No, we don't want to be a systems integrator -- there are
enough of those in the world."
So says Frank Lanza, whose strategy for L3 Communications sounds
distinctly contrarian in an era and industry where most major suppliers
aspire to provide airframers with complete systems.
"We did that at Loral, where we went from a black box supplier,
but that's what you had to do to survive." Some might claim
that Loral didn't-at least, not independently. Now Lanza is back
to making black boxes.
"There's been so much consolidation in the industry, and defense
budgets have declined so dramatically, there is no room for more
providers of integrated systems or platforms," the L3 chairman
and CEO told Show News. So his company specializes in being
an old-fashioned vendor.
"We're the Sears catalog," Lanza says. "Thousands
of products. We've gone the exact opposite way we went at Loral,
but that was what we decided to do when we formed this company three
and a half years ago." L3, now a rapidly growing avionics and
electronics outfit, was initially formed by the buy-out of former
Loral companies.
Since then L3 has built to $2 billion in sales. And despite how
Lanza likes to describe it, L3 is anything but Mom and Pop. It,
too, is an engine of consolidation.
Specializing in the development, construction and installation of
secure systems for intelligence collection and communications, L3
is looking for specialized vendor companies to add to its collection.
The synergies it seeks are digital, software and microwave-categories
covering 80% of its products.
There are really very few customers, says Lanza. So it is far more
efficient for one large, $2 billion L3 to approach them with a catalog
of products than for a $100 million company to have its own marketing
and customer support teams. L3 tries to co-locate its companies
whenever possible, sharing space, R&D, reducing expense, and
cross-fertilizing ideas.
"So we can buy a $100 million company that doesn't have all
these resources, and we tie it to a $2 billion company, and one
and one really makes three," says Lanza.
L3 has grown a rapid 35% to 40% per year since 1999, while maintaining
a good profit margin and increased earnings. "We're starting
to see from fruits from R&D investment over the last three years,"
Lanza says. "We invest heavily, over $100 million a year, in
just developing products and boxes, as opposed to systems. The government
gives us another $250 million in R&D, so we're at $350 million,
just in building and developing new boxes as opposed to airplanes,
tanks and ships.
"We probably invest more in a variety of products than most
companies in the world."
By John Morris
PUBLICATIONS
