HRS Harris Corp.

Harris Corp. (HRS) reported mixed financial results for the second quarter of fiscal 2012. We believe the company is facing several near-term concerns as the contraction of the U.S. and international defense expenditures may act as a major threat to Harris.

Though management remains confident that its consolidated pipeline opportunity is still intact, we are not sure exactly when these contracts are going to be realized, given the ongoing political instability in Asian and African regions and a volatile global macro-economic environment.

Harris is the sole U.S. defense contractor, which manufactures integrated broadband enabled and software defined tactical radio for the U.S. military. The company’s innovative advanced radio and satellite communications platforms coupled with share repurchase plan, may pave the way for its future growth.We reiterate our Neutral recommendation on Harris.

Strong momentum in the RF Communications segment in the International markets is likely to continue since Harris’ next-generation Falcon III tactical radio is receiving increasing market traction. At the end of the previous quarter, order backlog came in at $1.252 billion including $581 million in Tactical Radio Communications and $671 million in Public Safety and Professional Communications.

While tactical radios constitute $3.5 billion pipeline opportunity, Public Safety and Professional Communications provides another $3 billion pipeline opportunity.

Acquisition of M/A-COM public safety business is generating synergies for the company’s existing land mobile radio business. The global public safety market is currently going through a transition from analog, singleband, proprietary operating system enviornment to digital, multiband, open operating system enviornment. Integration of high-end solutions of M/A-COM enables Harris to gain a competetive postion compared with its larger peer Motorola Solutions Inc. (MSI) in the $6 billion global Public Safety and Professional Communications market.

 
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