Strength

1. Strong product portfolio: With more than 200 specialized products that Lockheed Martin offers, its product portfolio is strong enough. It has products not just for air, water and land but space as well. Advanced Train management system, Laser weapon system, Aegis combat system, Warfare Destroyer, Surveillance radars, Airborne Lab, Tactical missile system, Logistic information system, Training systems, Simulators, Combat trainer, Cognitive control and demand, Common Vehicle, Cyber warfare, Fighters, Transceivers, GPS, Hybrid Airship, Ballistic Missiles, Spectrograph, Meteorological instruments, Oceanographic instruments, Helicopters are few products just to mention. Moreover, it has starting working towards adding onto new products to this portfolio with its research in neuroscience for brain simulators as well. In area of artificial intelligence, it is researching to enhance existing products’ capabilities by infusing it with AI. In area of cyber security as well, it is creating systems which are safer and difficult to crack. Such a wide and diverse range of products under single name, Lockheed Martin, is its biggest strength.

2. Provides customers with multi-layered and integrated air and missile defense: Lockheed Martin is known for its multi-layered and integrated air and missile defense systems viz. PAC-3, Aegis Combat System, THAAD, etc. These systems continue to improve and serve as the strengths of Lockheed Martin. PAC-3, a high-velocity interceptor, defends against incoming threats, including tactical ballistic missiles, cruise missiles, and aircraft. A contract worth $944 was won by Missiles and Fire Control or MFC for production and delivery of PAC-3 which shows the continued demand for these system in the market. Apart from this, a plan to purchase the Aegis Combat System from Rotary and Mission Systems or RMS which are used to intercept a medium-range ballistic missile and track and destroy multiple live targets were approved by Japan’s cabinet. THAAD or Terminal High Altitude Area Defense system also came up with its first intermediate range ballistic missile intercept, and the 15th successful intercept in 15 attempts for the THAAD system since 2005. THAAD system continues to prove its ability to intercept and destroy many classes of ballistic missile threats to protect citizens, deployed forces, allies, and international partners around the globe.

3. Huge scale of organization: It is not only about the wide array of 200+ specialized products it creates but it is also about the overall scale of organization at which it operates. As per 2017 data, it has 100,000 total employees out of which more than 7200 are outside the U.S. and are spread across 52 countries at more than 400 facilities. More than 70 nations are dependent on Lockheed Martin’s products and technologies. In the U.S., it supports more than 15,000 suppliers in its value chain by providing $19.3 billion and $5.7 billion outside the U.S in 50 countries. With $51.05 billion of revenue it was able to get net income of $2 billion, increase annual dividend by 10% and provide returns of 81% to its stockholders. With such huge numbers on its records, Lockheed Martin is truly operating at humongous scale which is not easily replicable by any new entrant in the market. Thus, creating a strong entry barrier for others and protecting itself from new competitors, which itself can be considered as one of the strengths.

4. Technological Expertise and R&D: Lockheed Martin is one of the most technologically advanced companies. It has created a high entry barrier in its market for new entrants by investing heavily in its Research and Development. It constantly strives to be ahead of the time by creating new and advanced solutions to meet future energy, defense, space, social, logistic, cyber, marine etc demands. Lockheed Martin conducts R&D under two categories viz. customer-sponsored contracts and with own independent R&D funds. Costs incurred in doing R&D for customer-sponsored contracts is covered in the customer’s contract under net sales and cost of sales. Independent research includes basic research, applied research, development, systems and other concept formulation studies and is funded by itself. In 2016 the independent R&D costs charged to cost of sales were $998 million and it increased to $1.2 billion in 2017. Having being able to dedicate huge amounts in R&D over the years has made it technologically advanced and thus it is the company’s one of the biggest strengths.

5. Consistently strong financial and operational performance: One of the biggest strengths of Lockheed Martin is that it is highly efficient at using its resources and making out the most of what it has. As of Q3 2018, it has a high asset turnover ratio of 1.11% which is far greater than that of its competitors (Raytheon Company: 0.87%; The Boeing Company: 0.94%; Northrop Grumman Corp: 0.88%; General Dynamics Corp: 0.83%). High asset turnover ratio suggests that Lockheed Martin is using its assets highly efficiently to fetch its sales or revenues. 1.11 means that the company is generating 0.11 extra over its investment of $1 in their assets. Also, the company has higher return on invested capital (23.64%) than its peers (Raytheon Company: 19.47%; The Boeing Company: 20.92%; Northrop Grumman Corp: 16.61%; General Dynamics Corp: 17.10%) which reflects how efficiently the company is at allocating the capital under its control to profitable investments. These high ratios are the representation of highly efficient operation at Lockheed Martin. Along with this, Sales of $51.0 billion, up eight percent versus 2016; dividend of $2.2 billion paid in 2017, and increased the quarterly dividend by 10 percent in the third quarter to $8.00 annually; Segment operating profit of $5.1 billion; Segment margin of 10.0 percent; Net earnings from continuing operations of approximately $1.9 billion are some financial figures showcasing the consistent strong financial performance.

Weakness

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Opportunity

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Threat

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Political

1. Succumbing to political pressures: The philosophy of the ruling party, stance on international crisis and decisions related to it, have an immense impact on the defense budget which in turn affects the defense manufacturing companies like Lockheed Martin. The impact could be in terms of higher regulations, budget constraints, proliferation etc. One such example is when Lockheed Martin succumbed to the political pressure from the Donald Trump’s government which made it reduce its price for its best-selling product, F-35 in 2017. For the first time in history of aerospace manufacturing the cost charged for Air Force version of F-35 was brought down to less than $100 million. This was result of intense week-long discussions between Lockheed Martin and the U.S. government which were already been delayed. Lockheed Martin had to accept this offer as the U.S. Government plans to buy 2400 of such F-35 from it and it could not loose upon such a big contract. This is not just one incidence when the U.S. government has tried to bring down prices, even earlier governments have attempted doing this, at that time, the prices were reduced from $108 million to $102 million. This and many such political pressures are faced by Lockheed Martin where to stay in business it has to crunch its contribution margins.

2. Ongoing conflicts in the Middle East and elsewhere: Governments around the world have flushed out a lot of money while dealing with ongoing crisis in middle east and elsewhere and the U.S is one of the major mediators which uses its defense power to comfort the situations against various terror groups. Along with crisis in Syria and Yemen, the fresh sanctions against Iran is also a growing conflict. With constant nuclear threats from North Korea and Trade war, there is an overall rise in expectations of conflicts. The rise in expectations converts into rise in defense expenditure on armoury as well as defense R&D. In particular, for the U.S. to intervene in a war or to fight with any of these countries means it needs weaponry, which is provided by Lockheed Martin. Thus, the rising tensions between nations and ongoing conflicts are the situations in which the company can cash on, invest in advanced defense systems and find abundant growth opportunities.

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