NorthJersey.com: Clifton-based defense contractor looks to future
By Hugh R. Morley
Christopher C. Bernhardt, president of Clifton-based ITT Electronic Systems, makes no bones about what makes his company’s cash registers ring.
“We are a country at war,” he said on a recent afternoon at the company’s 13-acre headquarters. “And we are a company that serves customers with products that save lives. That’s the way it’s been since Sept. 12, 2001.”
Whether business will continue at the current pace, however, is a cause for concern to ITT, which makes electromagnetic-based products, from state-of-the-art military radios to missile detection systems and aircraft precision landing equipment.
With the Iraq war slowing, the long-term future of the Afghan war uncertain and the military changing its priorities, ITT and other military contractors are increasingly looking to find new revenue streams.
Two weeks ago, ITT’s White Plains, N.Y.-based parent, ITT Corp., announced a major restructuring of its defense business, which is now under way, consolidating seven company divisions into three and boosting the prominence of the Clifton office, which now heads the largest of the three divisions.
Bernhardt said the move is designed to adapt to the new economic and military environment. Seventy-five percent of the company’s revenue — about $2.7 billion after the restructuring — comes from military contracts, he said.
“As people think about the downturn in defense,” he said, “the leaders of my operation get paid to look out four, five, six years and say, ‘Where are my customers going, where is our market going and how do we reposition the business?’ ”
“My goal is to further diversify the portfolio, to offset and mitigate the eventual decline of the Department of Defense,” he said. “And that’s what we are doing.”
To that end, the company is looking to foreign governments for business and trying to retool its products for civilian use, such as using surveillance equipment for anti-narcotics efforts and tiny electromagnetic wave emitters to slow the spread of brain cancer.
David Fishering, a California-based defense industry analyst, said most top defense companies are making moves similar to ITT, either through reorganizing and restructuring or cost cutting.
Yet the extent of future defense cuts and their impact on contractors is unclear, said Bernard Finel, senior fellow at the American Security Project, a Washington, D.C.-based think tank.
Although U.S. military expenditures in Iraq are declining, they are increasing in Afghanistan at a faster rate, so a decline in direct war spending is not imminent, Finel said.
That’s good news for contractors who supply the kind of day-to-day equipment needed to wage war — ammunition, fuel and food, he said. But funding cuts to longer-term programs such as a recently cut search-and-rescue helicopter system would hurt suppliers to those sectors, he said.
“These are not companies that have the ability to diversify significantly,” Finel said. “They are trying to find out which programs are durable and which ones are not, and they are trying to consolidate where they can.”
ITT’s restructuring came after eight years of steady growth, organically and through an acquisition, said Bernhardt, who joined the company as president in June 2001.
Company revenue, about $100 million at the time, has grown by double digits annually ever since, company officials said. That’s boosted the company’s Clifton workforce from 300 to 1,350. The company, which was known as ITT Avionics until 2005, expects to hire at least 100 engineers this year.
A key part of the company’s revenue in that period came from an electronic system designed to intercept and confuse radio-guided missiles heading toward military aircraft, said spokesman John C. Dench.
Yet until 2006, the company got no part of the federal funds used to wage the Iraq and Afghanistan conflicts, Bernhardt said. That changed, he said, after he visited wounded soldiers, many with limbs blown off and severe disfigurement, at the Walter Reed Army Medical Center in Washington, D.C., in 2006.
“What took my breath away was that, to the man and woman, I said, Would you do this again?’ and to a man they said, ‘yes,’ ” Bernhardt said. “I said to myself, there has got to be something ITT can do with our technology.”
He formed a team to study how ITT’s technology could be used to stop improvised explosive devices, or IEDs, one of the biggest threats to soldiers in Iraq and Afghanistan. The bombs, which are often left in the path of passing troops, are detonated by a radio-based device such as a cellphone or an electronic garage opener.
ITT developed a device to “jam” the signal before detonation, and acquired New York-based EDO Corp., which made similar technology, in 2007 for $1.7 billion. ITT has now shipped 21,000 anti-IED units, generating revenue of $1.6 billion, Dench said.
The company’s new strategy is designed to broaden the market for such military products by expanding relationships with existing customers like the governments of Oman, Brazil and Chile and find new ones.
Some company products designed for military use are already employed in the private sector. ITT satellites used in Global Positioning Systems, which were developed to help military units keep their bearings, are also used to guide citizens armed with consumer GPS units, company officials say.
And ITT is working with New York-based NovoCure, which has a plan before the Food and Drug Administration to use tiny sensors to generate electromagnetic waves that would stop cancer cells splitting and slow the spread of cancer in the brain and other organs, Dench said.
The sensors, originally developed to detect threats to military ships and submarines, would be made by ITT if the FDA approves the plan, he said.
Bernhardt says the company is harnessing the same instincts and skills that fueled its growth.
“Part of the success of any company is about what inspires employees to do great things,” he said. “This company is all about innovation. Innovation is all about ideas, and people who generate ideas are people who are inspired.”
That’s the main reason the company does not expect to move, especially to a cheaper out-of-state location, even though the Clifton campus is reaching maximum capacity.
Instead, the company opened a Bloomfield facility at the end of last year to allow the expansion of the GPS business, he said.
“When you have built a business that is as deep technically as this, from people who are from the area, it’s very hard to replicate that in another area without taking a phenomenal risk,” Bernhardt said, adding that New Jersey residents don’t like to leave the state.
“You are just not going to take talent like this and resurrect it in New Mexico,” he said. “It’s not going to happen.”
