With its headquarters in Waltham, Mass., Raytheon Company (ticker symbol: RTN) is a well-known defense contractor with projects involving technology, aerospace, automation and much more. A good SWOT (strengths, weaknesses, opportunities, threats) analysis is going to look at the company in terms of its reliance on government and market ups and downs related to military demand.
One of Raytheon's greatest internal strengths continues to be its cash position. The company is recently realizing a boom in international sales revenue for its products and services, and it has enough cash on hand to pay for both increased equity buyback and additional development and research.
As a company that makes systems work rather than a one-pony show with all its money on one product, Raytheon has insulated itself a bit from significant downturn if specific projects are lost. The integration side ensures Raytheon’s involvement in government work because it provides the technology infrastructure that other projects to rely on.
The company is also structured into divisions, covering integration, missile systems, intelligence, networking, space and air, and technical services for special projects. This helps Raytheon maintain a broader product line rather than relying on one program for revenue.
Internally, if the company decides to offset its possible military revenue losses with international sales, too much of a balance shift could leave Raytheon exposed later when international sales fall off. The weak U.S. dollar can help somewhat, but then this forces Raytheon into a price war in which it is seen as a bargain bin rather than a quality service.
Further, given the fact that Raytheon's product line is predominantly military-based, it has no true diversification in other industries to offset a downturn in military demand.
Raytheon is heavily involved in aerospace and space development, which continues to be in the forefront of advanced military demand and needs. With the recent successful test of a laser on a plane shooting down a launched missile, whole new markets are developing on the aero-defense side, offering new avenues for Raytheon to pursue.
As an external threat, federal government whims and political forces constantly affect Raytheon’s continued success. With the change in Congress and the presidency from a conservative to a more liberal position, Raytheon may see budget cuts from the government affect current projects and new business.
Also, competition will continue to be fierce as the national government streamlines programs due to fiscal constraints. Main competitors include Boeing, Lockheed, Honeywell and others, all of whom are prime contractors and well-involved in lobbying for projects and winning contracts. Given the possibility of fewer dollars available in total for projects, Raytheon will easily survive competitive forces but will likely find its profit margins squeezed.
Fom a business strategic perspective, Raytheon is significantly dependent on military sales. It has offset softness in the American economy with overseas business, but the revenue streams are primarily in the same industry area. Given that full diversification in a brand-new industry is expensive, Raytheon will need to boost its efforts on research and development to stay ahead of competition and win out on scarcer contracting dollars.
- military helicopter image by Goran Bogicevic from Fotolia.com