Lockheed Martin opts out of telecommunications

Associated Press

LANHAM, Md. — Lockheed Martin Corp. said Friday it will get out of the global telecommunications business, cutting 650 jobs and taking a $1.7 billion fourth-quarter charge.

The Bethesda-based defense contractor, a major Boeing Co. competitor, said poor economic conditions in Latin America and an oversupply in the global telecommunications market led it to shut down Lockheed Martin Global Telecommunications.

The company will sell some of components of LMGT and absorb others into its remaining business units.

"We no longer anticipate that the LMGT business as a whole will be able to generate sufficient returns to justify continued investment," said Vance Coffman, Lockheed’s CEO.

The one-time charge will amount to $3.96 per share in the fourth quarter. Analysts surveyed by Thomson Financial/First Call expected Lockheed to earn 48 cents per share before charges this quarter.

The jobs being cut at LMGT represent about 18.6 percent of the division’s work force of 3,500 people. About one-third of those losing their jobs have accepted or been offered positions elsewhere at Lockheed. The remaining 2,850 workers at LMGT will be shifted to Lockheed’s other companies.

The world’s biggest defense contractor, Lockheed recently won a mammoth deal to build the Joint Strike Fighter, a next-generation jet that could be the largest military contract ever awarded.

But its telecommunications arm, one of Lockheed’s six major segments, has suffered losses during the past several years.

LMGT was formed when Lockheed bought Comsat Corp., a commercial satellite company, in August 2000. It offered satellite and fiber-optic communications services, both of which have been hurt by an oversupply, said LMGT spokesman Charles Manor.

"There is too much of it, and it is driving prices through the basement," Manor said.

The economic woes of South American countries such as Argentina and Brazil, which accounted for about a tenth of the division’s business, also hurt LMGT, Manor said.

Lockheed plans to move Comsat into its space systems division, but analysts said the satellite component may soon end up on the auction block.

"I question if they are really intending to stay in the satellite services area. If they had a buyer tomorrow at a decent price, they would sell Comsat," said Paul H. Nisbet of JSA Research.

Lockheed had already planned to sell Comsat Mobile Communications to Telenor of Norway for $116.5 million. That deal is expected to continue. The company is also in discussions over the sale of other components, said Manor.

The company restated its earnings for the first nine months of 2001 to reflect the end of LMGT, and its earnings were unchanged at $1.07 per share. Lockheed said it does not expect the move will affect its outlook for free cash flow or earnings in 2001 and 2002.

Shares of Lockheed fell 46 cents to close at $45.74 in trading Friday on the New York Stock Exchange.