Lockheed Martin Corporation (LMT) announced that it plans to downsize its workforce by 1,200 to reorganize its Electronics Systems segment. The downsizing is however less than 1% of the company’s workforce of 140,000. Lockheed Martin plans to carry out the downsizing in April 2010.
 
Through the reorganization, Lockheed Martin plans to form a new business unit called Mission Systems and Sensors that will operate within its Electronic Systems segment. The new business unit will include five lines of business including ship and aviation systems, radar systems and surface sea-based missile defense systems.
 
Lockheed Martin’s Electronic Systems segment manages complex programs and designs, develops and integrates hardware and software solutions to ensure the mission-readiness of armed forces and government agencies worldwide. Global security solutions include advanced sensors, decision systems and weapons for the air, land and sea. In fiscal 2008, net sales of $11.6 billion in the Electronic Systems segment represented 27% of Lockheed Martin’s total net sales. Of this, 71% was generated from the U.S. government.
 
Lockheed Martin remains a key player within the military space and continues to benefit from strong defense spending. The company’s customer base includes the U.S. government, foreign governments and other commercial buyers. Lockheed’s traditional defense focus appears strong, with increasing interest from domestic and international customers. In addition, management intends to explore strong business opportunities beyond the traditional defense market, specifically in the areas of civil, governmental and commercial space businesses.
 
Going forward, we believe Lockheed Martin has significant upside potential based on strong defense outlays throughout 2009–10, above-industry average return-on-invested-capital and expanding product lines. However, these are offset by risks related to key project executions, fate of high-cost platform programs, lower top-line results in the Aeronautics segment, higher pension liability and lower government satellite programs. We maintain our market Neutral recommendation on the shares of Lockheed Martin.
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