From: Drayton Smith
Essay Preview: From: Drayton Smith
Report this essay
Case 4 Study To: Mr James Key From: Drayton SmithSection: 485W T-T 8:00 am Huntington Ingalls corporate strategy according to figure 6.1 entails to there company using a related linked diversification strategy , which creates high levels of diversification. About 56 % of their total revenue comes from the Newport news segment which is 7.441 billion dollars. This allows their company to have a moderate to high level’s of diversification. Huntington Ingalls operates under three business segments according to the 2017 10-k which are a nuclear shipbuilding portion, a non-nuclear shipbuilding portion, and a non-shipbuilding segment. There are limited linkages between there shipbuilding segments, Newport news and Ingalls. The Ingalls site builds non-nuclear ships, such as assault ships, surface combats, and NSC’s, for the U.S. Navy and Coast Guard. The Newport News sites core business strategy is constructing nuclear powered ships such as submarines and aircraft carriers to businesses that are mainly focused on the manufacturing of heavy equipment for commercial nuclear power facilities and the operation, management, and cleanup of environmental hazard sites through the Department of Energy ( DOE) programs. The third business segment provides project, engineering, and construction management services to the gas and oil industry. These segments have linkages that are limited.
Huntington Ingalls is within the moderate to high level of diversification because it generates 44% of its revenue outside of its dominating business sector. Its categorized as using a related linked diversification with some unrelated linked diversification since Ingalls and Newport News build military ships using similar technologies. Huntington Ingalls focuses mainly on having a few business segments and concentrating on the shipbuilding industry while having useful relationship links of similar technologies, supply channels, and management processes. This has enabled it to produce positive returns. They share the same supply channels which provides the same raw materials such as paint, pipes. Another related link that proves this strategy is the customer link. Two of the three businesses provide products and services to the government. The unrelated link regarding the business segment that provides management consolations to the oil and gas industries has nothing to do with shipbuilding even though it still has some links to them via the sharing of knowledge dealing with product management, construction, and engineering process. Huntington Ingalls related links strategy fits them very well financial. On page 51 of the 10-k report it proves that Newport news sales and revenue increased from 4,089 to 4,164. Ingalls revenues also increased by 2,389 to 2,420 but based on profit margin one may see that Ingalls has a greater impact on Huntington Ingalls overall return than the Newport News section. Ingalls has a 12.5% profit margin, while Newport News has an 8% profit margin, so Ingalls is more profitable. The stock performance graph on pg. 30 proves financially that Huntington Ingalls has improved consistently over its competitor. The graph shows that Huntington Ingalls has above average returns and has much going for them. Financial Ingalls backlog numbers shows that Ingalls segment has less unfunded backlog than the Newport News segment. On pg. 53 the numbers show that Ingalls has a total backlog of 7,991 and 2,071 of it is unfunded, and Newport News has a total backlog of 12,584 and 5,608 of it is unfunded. We can conclude that this shows neither business should realistically be abandoned. The Newport news segment produces 56% of Huntington Ingalls total revenue. Shutting either one of these businesses down would become detrimental to their overall financial performance. They are providing value to their stockholders because there economic returns are higher than their competitors.