Cary, I agree with your conclusions about the earnings and ATPX's future.
Take a look at this recent article about the sector:
Aerospace & Defense Companies Poised to Generate Significant Revenues from Product Development, Finds New Study
March 16, 1998 11:14am
PR Newswire
Strategy Designed To Grow Share In Traditional Markets And Expand into New Sectors And Emerging Markets
NEW YORK, March 16, /PRNewswire/ -- Aerospace and defense ("A&D") executives anticipate that 31 percent of their revenues will be derived from products introduced in the next three years. This is a phenomenal rise of 59 percent from last year's near 20 percent level, finds the 1998 Vision in Manufacturing global CEO study, released today by Deloitte & Touche and Deloitte Consulting in collaboration with researchers at the Kenan-Flagler Business School of the University of North Carolina.
A&D executives cite product innovation, commercialization and globalization as principal strategies for growth. These strategies in turn will call for more efficient and cost-effective business processes. At the operational level, effective organizational change, supply chain integration, increased customer orientation and workforce flexibility are seen as the key enablers for successfully implementing these strategies.
"Aerospace and defense contractors are grappling with the complexities of an industry that is fast shedding its traditional rules for growth and profitability," said Michael Goldberg, leader of Deloitte Consulting's Aerospace & Defense Practice. "The old rules which relied on superior product performance are giving way to a fundamentally new model in which product cost and price are of equal, if not greater, importance in determining business success." The study pinpoints several key trends that will shape the face of the A&D industry moving into the next century --
Aggressive Product Innovation
A&D executives are aggressively pursuing improvements in product development. The accelerated growth of new sectors such as telecommunications and space technology are further fueling innovation. The pressures to innovate are being felt all along the supply chain -- prime contractors are leveraging their power over suppliers, requiring them to invest in R&D and share in product development costs.
The ability to innovate is a key differentiator for future success in the industry. Although European companies have ambitious goals in terms of increasing revenues from product introductions, it does not appear that the present capabilities of some companies will get them there. Recognizing this, European executives are investing in the tools and programs that will help them close the perceived gaps.
Diversification into Space and Telecom Industries as Part of
Commercialization Trend
In addition to enhancing product portfolios, A&D companies are diversifying into new sectors, such as telecommunications and space technology -- the fastest growing segments in the industry. In fact, A&D is the only industry in the global manufacturing survey where roughly 40 percent of executives anticipate a moderate-to-significant increase in new services that are not related to existing product lines. This growth, combined with particularly competitive and cost-sensitive dynamics within the telecommunications industry alone, demand new ground rules for A&D players participating in these markets.
European companies, in particular, are diving in to take advantage of the growing market opportunities in the commercial space arena. Savvy executives are aggressively moving forward to capture a larger market share of the expanding European market.
A&D Manufacturers Still Grappling with Globalization
Executives are actively pursuing market growth, with expansion into overseas markets at the top of their agenda. While North America and Western Europe continue to be important targets for expansion overseas, Asia Pacific is the choice destination for almost 90 percent of North American and European A&D executives, despite the continued currency crisis in the region.
The majority of the executives surveyed, however, are unsure as to which method to use to enter targeted markets. Therefore, many of the industry leaders are using various forms of strategic alliances as their vehicle for global expansion, placing a premium on having a robust alliance development and execution process in order to manage risk and go global successfully.
Harvesting the Benefits of Consolidation
Mergers and acquisitions fervor has radically altered the industry's landscape in the U.S. and has impacted the industry globally, resulting in a handful of very large and highly competitive companies that enjoy substantial market power. By contrast, Europe's A&D industry is just beginning to embark on this process: lack of political consensus and commitment has been holding them back, along with higher cost structures, stringent labor markets and cumbersome bureaucracies in some countries. Although defense budgets in European countries total about half that of the U.S., Europe has three times as many defense contractors.
For all regions, however, the quest for functional integration is far from over. Almost three-fourths of executives surveyed have undertaken major changes in their business units' organizational structure. Within the U.S., these changes were, in some cases, a precondition for government approval of the merger; for Europe, integration has been driven by fear of falling behind their North American competitors. As the industry moves into the 21st century, U.S. executives will focus more on operational change initiatives.
Conclusion
Overall, A&D executives indicate that globalization and product innovation are the principal strategies for growth in the next century. While these strategies have been recognized by the industry, execution still remains a challenge for many market leaders and followers.
"In the end, success in this industry will come down to the best execution of these strategies," said Goldberg. "Companies that are unable to adapt to the changing market will be left behind. For others, there are enormous opportunities for enhancing market share and profitability and achieving world-class competitiveness." |
