September 2010

I'll let you be CEO for $100M if we keep my hair piece and golf score as Trade Secrets

Mrs. Unknown Editor wants to point out, we'd have been rich from this web site by now if you'd just learn to shut up and teach microwaves!

Aw, honey, all work and no play makes Jack a dull boy.

But before we begin this diatribe, anyone who thinks they can really predict the future is delusional, and that goes double for anyone who thinks they can argue and convince someone of an opposing viewpoint in politics today. Surely on the U.S. political landscape, k-factor is less than unity.

Now on to the Unknown Editor's predictions, arguments, and viewpoint...

If you follow the logic of the Republican Party, the upcoming election is all about building a Mosque in lower Manhattan, deporting Mexicans, and repealing the extremely weakened health care bill. In other words, it's about going backwards in time. Read the GOP's A Pledge to America, and you'll see from the photos that the Party of Lincoln wants to go back to when everyone was white, cowboys weren't gay and red meat was for dinner. Seriously, look over the numerous photos in the "pledge" and count the number of minorities are represented.

Building a mosque anywhere is no more a national issue than Terry Schiavo's feeding tube was five years ago, and the Constitution pretty much says the government should butt out of both situations. If you think that national health care is a bad idea, just wait until you are unemployed in the near future. National health care is only a bad idea to people who are lucky enough to have their health care paid for. If you are looking for communist conspiracies, follow the defense industry to its Orwellian conclusion described below. The real issue at hand is bringing federal spending down to a sustainable rate, and collecting enough taxes to balance the budget. Captain Obvious wishes to point out that continuing tax cuts for rich people is really not in the best interest of people who work for defense contractors...

The Last Supper of 1993

Let's look back to the early 1990s for lessons that could be applied today.

The defense budget was slowly declining from a high of $427B in 1990. By 1993 it was $359B, and heading for less than $300B by 1998.

In 1993 there was a meeting of 15 of the CEOs of top defense contractors, called by Defense Secretary Les Aspin. Lockheed CEO Norm Augustine recorded the minutes for posterity, referring to it as "the Last Supper".

The effect of the Last Supper of 1993 was a huge consolidation of companies, a long list of plant closings, and massive layoffs of engineers. In most defense companies, the age group 35 to 45 years old is severely underrepresented because this group was in their twenties when layoffs hit, and provided most of the required numbers. Where did they go? Some went to commercial electronics companies, or startups. Some got disgusted with engineering and went into unrelated fields.

Is it going to happen again?

Since 2000 the defense budget has risen 72%, hovering around $500B, or more depending on how you account for the price of war. $680B is a more accurate number. We have accomplished just as many goals as we did in Vietnam, and it seems like it's time for a "peace dividend". It doesn't take Captain Obvious more than a few seconds to realize that the defense budget is going to get massively chopped in the coming decade. Will this have an effect on the microwave industry? As expert marksman Dick Cheney would say, "Big time!"

Here's some trivia... did you know that according to the Geneva Conventions, defense contractors are legitimate targets during war? Something to think about when your country invades another country...

Boeing has already expressed interest in a merger with Northrop Grumman. In this way they could bring back some of the airframe business that have lost. Northrop's new CEO is promising not to break up the company (except for dwindling shipbuilding business) but he wants to unlock shareholder value... a coded phrase for breaking up and selling off the company.

Raytheon and Lockheed are competing for a $5B missile contract. JAGM is likely the only big missile procurement of this new decade. It started out as Joint Common Missile, awarded to Lockheed in May 2004, but canceled in 2007 as part of $30B in budget cuts. The Alabama congressmen put it back into procurement as Joint Air Ground Missile, an attempted sweetheart deal for the Huntsville Home Team, Lockheed-Martin. It ended up a competition between teams of the usual suspects, and now it appears that test flights have swung the lead away from Lockheed. The award is expected in 2011, and you can bet that the loser will announce significant layoffs a few months later. When you lose to your competitor, what better way to get business back than buying them? If you don't think that this happens, you might want to talk to ex-employees of Hughes Aircraft...

Top ten military contractors today

In 2008 ranking is given below. Three of these contractors are service providers (as much of the business of war is outsourced), the rest are brick-and-mortar enterprises.

1. Lockheed Martin
2. Boeing
3. KBR
4. Northrop Grumman
5. General Dynamics
6. Raytheon
8. L-3 Communications
9. EDS Corporation
10. Fluor Corporation

If you look worldwide, the top contractor is BAE. EADS, Finmeccanica and Thales are in the top 20. These European companies may pick up a few more plums from the U.S. defense orchard, but are not likely to gain a full tree.

All major defense companies had some layoffs in 2010, but you haven't seen anything yet. Take a look at company B, company N, and company L, and company R. Keep a scorecard: the more layoffs, the longer the stock will retain some value.

Say, how'd you like an invitation to move from Long Beach, California to Nowhere, Oklahoma, like Boeing employees? This "reverse Okie" move will save the Government tons of money! No worries, in Oklahoma they serve Grapes of Wrath fresh from South America. Maybe Oklahoma can pay back California for the courtesies extended to displaced farmers in the 1930s...

Bum Blockade

Predictions for 2011-2012

Layoffs will accelerate, and plant closings will continue, with California scheduled to be the next Defense Company rust belt. Once California legalizes marijuana through Proposition 19, the "Regulate, Control and Tax Cannabis Act of 2010", defense companies will be in an awkward position: their employees must still pass a urine test looking for evidence of a legal recreational activity that is still illegal according to the Federal government. This will help some companies decide it's time to move on.


But there's no need to ever fear a urine test, with powdered urine to the rescue! How can you go wrong with free shipping and all the plumbing you need to conceal the deception even when you have to do the deed in front of the nurse! Look for the upcoming info-mercial.

Plan for a zero percent raise in 2011, with a lecture on the competitiveness of your company's peer group and how they all work dirt cheap. But take heart, there will be secret raises and bonuses for upper management. We want to retain that top talent!

Following zero raises, layoffs and plant closings, mergers will begin. We can speculate what mergers might make sense, but in the end the mergers will be picked by Wall Street, not engineers. If Boeing buys Northrop, Lockheed is going shopping in order to stay in the coveted number one position. That PAC fund your company asks you to contribute to will come in very handy getting Congress to certify that none of this will affect competitiveness.

Warning signs your company is about to merge...

  • The CEO of your company seems extra tanned, and has restyled his hair piece... he wants to look good for the defining moment of his career!
  • Management disappears for an off-site meeting that no one will talk about. Although they know what is up, but if they tell you they could be fired. Take your admin out for drinks if you want to know the truth.
  • Finally, an all-hands meeting is called, with short notice. Get ready to be thanked for your years of service, and receive a free book that's an easy read!

A better way?

How about this... your company accepts that $10B might be $5B in a few years, the stock is going to drop no matter what, and you start tightening the corporate belt. Perhaps a CEO that wants to be remembered fondly will give himself a pay cut, sell the corporate jet, and... don't count on it. But there are other efficiencies that can be extracted to remain competitive with the Big Boys.

The previous Last Supper RIFed most of the 20-30 year old engineers, and baited the 55+ crowd to bail into retirement with free medical plans. These are not people that you want to leave. Because of all the lard on modern company's payroll, this time you have a much better chance to get it right. In the past ten years, Big Companies have built up a wealth of non-value-added employees. It's time to cut some of them loose. Let's identify them by words that might appear on their electronic business cards...

Anyone with the word "deputy" in their title.

Any organization that uses the word "excellence" or "solutions" in their title

Any person that ever felt it necessary to add the words "six sigma expert" to their meager qualifications

When the 1990's mergers were over, the original companies could still be identified as business units of the larger firm, and not always working together. Now's the time to make a last ditch effort to actually start working on a common strategy for the company's welfare. It doesn't take much to put everyone on the same page, just a little fear instilled by corporate leadership. If you have dissent from a group that wants to sneak work out the door when you could just as well do the work in-house in another facility, just pick one of the more outspoken culprits, fire him/her, then tell the rest of the group "Bob wasn't on the same page with the company so he's no longer with us". Problem solved.

Sorry to be the bearer of bad news to the airline industry, but no matter how crappy a "net meeting" is, it is more efficient than hauling someone's ass to another time zone...

If you do end up in a merger...

If your company is forced into a merger, don't start by getting rid of people or plant sites. The first thing to get rid of is organizations. If you have three groups in three states designing antennas, merge them all, pick one leader, but rotate the leadership so that there's no favoritism.

If you get RIFed, fear not. There will always be work for committed microwave engineers, even if your prior company gets digested by your sworn enemies. If you are young, you might have to live with Mom and Pop for a few months, and you might as well head back to school and get that Masters Degree. But if your heart is not in it, it's a good time to exit the business. Say, why not get your real estate license? Even if you don't make a single commission, it might come in handy when you short-sale your house.

Defense companies will still have to lay off engineers, with/without mergers. One unique merger problem is the people doing the layoff might not be familiar with the group that they have to thin. Here's some advice: let the local management come up with the list.

The End State

What is the end state of merger mania? Because it is always easier to be inefficient, and big companies can handle inefficiency better than small ones, eventually just one defense electronics company will exist, perhaps called Blockmart-NorRayGen. This will not merely be a company, it will be a business unit of the U.S. Government, with the ratio of CEO pay to lowest worker pay exceeding 1000X. As Orwell pointed out, all animals are equal, but some are more equal than others.

How's that for a communist conspiracy? Welcome to the War Machine! Now it's time for your mandatory Six Sigma training...

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