On Friday, the Wall Street Journal reported Harris Corp. is exploring strategic options that could eventually lead to a sale.

The last big contractor to explore its strategic options was CSC in 2006. CSC is still intact. What will happen to Harris?

Why now?

Is Harris riding high from the war? Yes. Federal sales from its RF Communications unit in Rochester, NY, traces the success. $71 million in FY 2000. From FY01 to FY04, bounces between $120 million and $220 million. More than doubles to near $500 million in FY 2005 and doubles again to $1 billion for each of the past two years. (Source: Harris Corp. INPUT vendor profile)

Possible buyers:

1. Private equity? Unlikely given possible interest from the largest contractors to stay the largest contractors, and tough credit markets.
2. Equal or larger integrator? Lockheed Martin, Boeing, Northrop Grumman, General Dynamics, Raytheon, BAE Systems, United Technologies, L-3 Communications. I think this is not as obvious as it appears given the non-government work may be difficult to spin-off and could depress the value to a traditional integrator.
3. Large networking player? Cisco, Motorola, or Ericsson (who tried their hand with SBI-net).
4. Foreign buyer? No. While British buyers (BAE, QinetiQ) have bought some primes, and others are targeting subs (Finmeccanica with DRS Technologies), Harris' technology and contracts are too politically and national security sensitive for foregin ownership.

A split?

If Harris was split up, where would the lines be drawn? Government/commercial? Manufacturing/services? A majority of Harris' estimated $5 billion in annual revenue (4x last quarterly revenue) comes from government work. Harris' government work lies in two business segments - Government Communications Systems and Defense Communications and Electronics. Could they be sold separately from commercial work? Maybe, but a break-up of Harris and its core manufacturing business may be even more difficult than what was considered with CSC whose 'simple' outsourcing business was reportedly too complex to split government/commercial with attractive valuations.

From a review of Harris' federal prime contract obligations:

1. Nearly 90% from defense work; top customer is Navy
2. Organic and inorganic (13 acquisitions since 2000, notably Multimax in 2007 and Orkand in 2004) growth from $336 million in FY 2000 to $1.75 billion in FY 2007
3. $1 billion annually from RF Communications business (part of Defense Communications and Electronics segment)
4. Nearly $200 million in FY 2007 from Air Force's NETCENTS contract; NETCENTS 2 procurement is in progress
5. High-profile hiccup - 2010 Census' Field Data Collection Automation contract - is only 5% of federal prime work

Source: Harris Corp. INPUT vendor profile

What is the contract portfolio?

While Harris' most valuable contracts today measured by revenue are specialized defense communications contracts, other contractors may place attractive valuations on relatively smaller pieces of Harris' contract portfolio.

Harris' brand-name technology contract vehicles: