Money Morning » Defense http://moneymorning.com Global Investment News Mon, 13 Feb 2012 20:58:08 +0000 en hourly 1 http://wordpress.org/?v=3.3.1 Will Egypt End the "Obama Arms Bazaar?" http://moneymorning.com/2011/02/16/will-egypt-end-the-obama-arms-bazaar/ http://moneymorning.com/2011/02/16/will-egypt-end-the-obama-arms-bazaar/#comments Wed, 16 Feb 2011 10:00:53 +0000 Keith Fitz-Gerald http://moneymorning.com/?p=38037 GOOG) and Twitter played during Egypt's recent turmoil, I immediately zeroed in on all the American-made military hardware that exists in that region - and began to analyze the risk that investors face if the U.S. defense industry quite literally bet on the wrong horse.

Between 2006 and 2009, we sold more than $50 billion worth of weapons systems and related hardware to Middle East nations, according to the Congressional Research Service. The value of annual military contracts in the region has quadrupled since 2000, according to CNN.com.

And it doesn't look like things are slowing down - at least, not yet.

For more on the "Obama Arms Bazaar," please read on...

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While many investors are focused on the roles that Google Inc. (Nasdaq: GOOG) and Twitter played during Egypt's recent turmoil, I immediately zeroed in on all the American-made military hardware that exists in that region - and began to analyze the risk that investors face if the U.S. defense industry quite literally bet on the wrong horse.

Between 2006 and 2009, we sold more than $50 billion worth of weapons systems and related hardware to Middle East nations, according to the Congressional Research Service. The value of annual military contracts in the region has quadrupled since 2000, according to CNN.com.

And it doesn't look like things are slowing down - at least, not yet.

Impact of the "Obama Arms Bazaar"

Since U.S. President Barack Obama took office, there's been a major acceleration in the sales of frontline fighter jets, tanks and other U.S.-made hardware and weapons systems being sold overseas. According to the Defense Security Cooperation Agency (DSCA), worldwide sales zoomed from $18 billion in 2006 to $30.7 billion in 2009.

In 2009 and 2010, the U.S. Department of Defense notified Congress that weapons sales to foreign buyers could reach as much as $100 billion - almost an eightfold increase from the $13 billion that was the yearly norm from 1995 to 2005, Deutsche Bank AG (NYSE: DB) analyst Myles Walton told CNNMoney.com.

As a rule of thumb, those congressional notifications are more likely to translate into $50 billion to $70 billion in actual sales. About half of those deals are done with customer countries in the Middle East.

"There is an Obama arms bazaar going on," Arms Control Association Deputy Director Jeff Abramson told CNNMoney.



While the biggest buyers are countries such as the United Arab Emirates (UAE) and Saudi Arabia, Egypt accounted for about $2 billion worth of deals all by itself in 2009 - including one calling for the purchase of 24 F-16 "Fighting Falcon" fighter jets. This means that Egypt is second only to Israel in terms of equipment purchased and foreign "aid," which is how most of this stuff gets sold. Frequently, it's hard to separate the two, especially when the amounts of money are so large.

A case in point: The U.S. forked over $250 million in economic aid to Egypt, while sending 5.2 times that amount, or $1.3 billion, to that country's military in 2010 alone. Similar amounts are requested for this year and 2012.

Sticky Wicket

But here's where this big recent run-up in foreign military sales starts to get a bit sticky: Many of the Middle East countries now experiencing unrest - including Tunisia, Jordan, Bahrain and even the UAE, to name just a few - are apparently the same nations that the United States has been supplying.
This raises two questions - in my mind, anyway:

  • What happens to all of that hardware if the customers (the regimes) who bought it are quite literally thrown out of office like Mubarak was recently?
  • And what are the risks to such major U.S. defense contractors like Lockheed Martin Corp. (NYSE: LMT), The Boeing Co. (NYSE: BA), Raytheon Co. (NYSE: RTN), and others if a newly formed regime turns hostile?
The answers may surprise you: The fallout from an ousted regime is not what you might expect; and neither are the risks.

If a regime that's a U.S. defense-industry customer gets overthrown or ousted, the United States doesn't just get to take the hardware or weapons-systems back, says Pieter D. Wezeman, a senior researcher with the Stockholm International Peace Research Institute. Instead, "the new regime would just inherit them" - much like Iran inherited dozens of the then-frontline F-14 "Tomcat" fighter jets back in 1979, when the Shah was overthrown as part of the Iranian Revolution, which enabled the Ayatollah Ruhollah Khomeini to come to power.

Since then, our government has spent hundreds of millions of dollars rounding up repair parts and destroying them - just to make sure that the now-retired (but militarily still lethal) Tomcats can't keep flying.

Unfortunately, despots are as inventive as they are opportunistic, which is why Iran reportedly still fields some 20 to 30 F-14 Tomcats that are virtually identical to the "Top Gun" fighter that was flown until very recently by the best-of-the-best in the U.S. Navy.

Moreover, rumors persist that the remaining Iranian F-14s are now equipped with Russian engines and radar that can keep them flying for a while longer.

Worker, Budget and Earnings Worries?

Aside from the security concerns, there are also economic worries. There are roughly 3 million people who work in the U.S. defense sector, according to the U.S. Bureau of Labor Statistics (BLS), which means any regime change "over there" could put the squeeze on our work force right here at home.

As recently as 2007, four of the world's five top defense firms and seven of the Top 10 were U.S. companies, says Richard A. Bitzinger, author of "The Modern Defense Industry." What's more, U.S. defense firms regularly capture more than 50% to 60% of the worldwide off-the-shelf arms sales.

Many analysts argue that overseas contract risks are not all that significant because overseas arms sales typically represent less than 20% of revenue for such firms as Lockheed Martin and Boeing. But analysts who make such arguments are out of touch with looming major shifts.

In the 10 years since 2001, U.S. defense spending has more than doubled - to $725 billion for the current fiscal year. That's roughly what is spent by every other country on earth - if you add all of their defense budgets together.

Now, with the fiscal 2012 budget out on the table and up for debate - and with budget deficits, the burgeoning national debt and the federal-debt ceiling exacerbating existing fears about the nation's long-term viability - a new "need-to-cut" sentiment is going to take hold in Washington.

Lawmakers are loath to cut sensitive entitlement programs - such as Social Security and Medicare/Medicaid - even though they account for about 60% of annual federal spending. That doesn't exactly leave cut-happy legislators a "target-rich" environment. So they'll go after defense spending, which only accounts for roughly 19% of the budget (if we're talking about DoD spending only), since that's politically much easier to paint with a "bad-guy" brush (an odd irony, since many of those weapons systems actually arm the very "good guys" whose job it is to protect us).

This newfound thriftiness regarding U.S. defense spending means two things for U.S. defense contractors:

  • First, the overseas sales the afore mentioned analysts dismiss as irrelevant will take on an even greater importance as these companies (most of them publicly traded), work to maintain sales-and-earnings growth in order to keep their shareholders happy.
  • And these firms may have to work harder to control their costs, which in most cases is a euphemism for slashing headcount. With unemployment still well above 9%, a major cost-cutting push by a sector that employs 3 million people won't be good for the U.S. recovery.

What to Watch For

Indeed, as our government has been so rudely reminded during the ongoing financial crisis, unemployment and underemployment can create a vicious circle that stretches far beyond lost wages. So budget cuts at home, combined with regime overthrows that lead to lost sales and lost markets abroad, may have a material impact on the U.S. economic rebound - and on U.S. stock prices.

Not all these companies are U.S.-based, meaning that - in terms of those stock prices - some are more vulnerable than others. But they all have U.S. workers. And they will all clearly be watching the events in Egypt as they unfold - and looking for possible fallout in other Middle East markets.

Here are some companies that have existing contracts with that country, according to the Department of Defense contract database:

  • Lockheed Martin Corp. (NYSE: LMT): This aerospace giant - which forged its reputation for building the red-hot P-38 "Lightning" twin-engine fighter back in World War II - just won a $213 million U.S. Air Force contract for Egypt's border- patrol program and a $46 million U.S. Army contract that provides night-vision technology for Egypt's Boeing-built AH-64 Apache helicopters.
  • DRS C3 & Aviation Co.: A U.S. subsidiary of Italy's Finmeccanica SpA, DRS C3 & Aviation Co. is providing the Egyptian- border- patrol program with vehicles, equipment and logistic services - to the tune of $46.1 million - while also handling a separate $19.6 million Army contract for surveillance hardware.
  • L3 Communication Holdings Inc. (NYSE: LLL) L3's Ocean Systems unit recently took on a $24.7 million Navy contract for sonar that's to be provided to the Egyptian Navy, and a $6.6 million Army contract for imaging equipment that's to be provided to Egypt's Army.
  • Deloitte Consulting LLP: A consulting-industry heavyweight, the privately held Deloitte Consulting is involved in a $28.1 million Navy contract to provide planning and support for various Egyptian aircraft programs.
  • The Boeing Co. (NYSE: BA): The dean of the U.S. aerospace industry, Boeing is working on a $22.5 million Army contract that provides Egypt's Army with 10 Apache helicopters, as well as a $5.8 million Navy contract providing logistical support to Egypt - and to other nations in the region.
Actions to Take: Though relatively peaceful in nature as far as regime changes go, the overthrow of Egypt's longstanding Hosni Mubarak dictatorship is certain to have deep and long-lasting effects on the global defense business, of which the U.S. defense-and-aerospace sector is one of the biggest members. The regime change in Egypt could hasten the pace of change in some of the Middle East country's already-unsettled neighbors. And that could be rough for the U.S. defense sector, which counts the Middle East as one of its biggest foreign-sales regions.

The timing couldn't be worse, given that U.S. federal budget and government-debt problems are certain to push along efforts to cut domestic U.S. defense spending. In other years, that would prompt U.S. firms to step up their sales efforts abroad. But additional regime changes overseas could block such efforts, leaving U.S. firms to cut costs - meaning workers - to keep lean and fit enough to keep shareholders happy.

It's obviously too soon to say who - if anyone - will be affected, or by how much. So right now, the best advice to follow is this: If you own any U.S. defense stocks, immediately consider placing very tight "protective stops" to protect your investments.


[Editor's Note: You can't find the best untapped profit opportunities without a well-built knowledge of the global markets. And Money Morning Chief Investment Strategist Keith Fitz-Gerald possesses such an insight - and more. The analysis and foresight Fitz-Gerald displays in this look at U.S. defense spending and Middle East unrest resulted from the same wisdom, experiences and skills he draws upon each day to establish market-smashing track records in his investing-advisory services.

Fitz-Gerald has displayed a particularly hot hand with the Micro-Quake Alert, a service that rewards subscribers with quick, consistent gains in small-cap and micro-cap stocks. To find out more about this mega-profit market niche that few traders have been able to consistently exploit please click here.]

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]]> http://moneymorning.com/2011/02/16/will-egypt-end-the-obama-arms-bazaar/feed/ 3 Defense Suppliers Compete for a Piece of India’s Multibillion-Dollar Military Revamp http://moneymorning.com/2010/10/18/defense-suppliers/ http://moneymorning.com/2010/10/18/defense-suppliers/#comments Mon, 18 Oct 2010 20:25:37 +0000 Kerri Shannon http://moneymorning.com/?p=30499 BA) is in talks with India for a $5.8 billion military aircraft deal as the country triples its defense budget, leading defense suppliers to compete for a piece of the multibillion-dollar action.

India is negotiating with Boeing over the purchase of 10 C-17 Globemaster III aircraft, which would be the largest defense order from India for Boeing, the second-largest U.S. defense contractor. India's Finance Minister Pranab Mukherjee said in February the government would spend $33 billion on defense in the fiscal year starting April 1.

The Asian country's "defense procurement budget is quite huge," Laxman Kumar Behera, a research fellow at the Institute for Defense Studies and Analyses in New Delhi, told Bloomberg. "The U.S. arms industry has become quite interested in the Indian defense market."

Boeing expects to bid for as much as $31 billion of military contracts in the next 10 years as India looks to replace aging Russian-made equipment.

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The Boeing Co. (NYSE: BA) is in talks with India for a $5.8 billion military aircraft deal as the country triples its defense budget, leading defense suppliers to compete for a piece of the multibillion-dollar action.

India is negotiating with Boeing over the purchase of 10 C-17 Globemaster III aircraft, which would be the largest defense order from India for Boeing, the second-largest U.S. defense contractor. India's Finance Minister Pranab Mukherjee said in February the government would spend $33 billion on defense in the fiscal year starting April 1.

The Asian country's "defense procurement budget is quite huge," Laxman Kumar Behera, a research fellow at the Institute for Defense Studies and Analyses in New Delhi, told Bloomberg. "The U.S. arms industry has become quite interested in the Indian defense market."

Boeing expects to bid for as much as $31 billion of military contracts in the next 10 years as India looks to replace aging Russian-made equipment.

"We've had a long-standing relationship with Russia. But that's changing now," Sitanshu Kar, a spokesman for India's Ministry of Defence, told The Washington Post last year.

U.S. President Barack Obama is slated to visit India early next month and will discuss securing more defense deals that - with the Boeing contract - could total $10 billion to $12 billion.

Boeing is targeting international contracts to counteract a slowdown in U.S. defense spending, and India's relationship with American defense suppliers has tightened over the past couple years.

"There's been increasing cooperation between India and the United States from both the defense side and security side," said Mark Kronenberg, vice president of business development at Boeing. "More importantly, from the Boeing perspective, it's not just about increased presence on the military side - we've always had a strong commercial presence here - we think with Indian suppliers and partnerships we can be here for a long time to come."

A closer business relationship with India could also open the door to Boeing benefiting from India's growing air travel demand. Earlier this month the chief executive officer of Boeing rival Airbus SAS said he expects India's aircraft need to climb over the next couple decades.

"Our market forecast is usually quite conservative but we should expect at least an additional 1,000 in the next 20 years here in India," Airbus CEO Tom Enders told a media briefing. "India next to China is one of the big growth hubs for the aviation industry."

Other U.S. companies hoping to cash in on India's multibillion-dollar defense spending are General Electric Co. (NYSE: GE), defense contractor Northrop Grumman Corp. (NYSE: NOC) and Lockheed Martin Corp. (NYSE: LMT), the world's biggest arms supplier. The companies have been wooing India since last year when the country signaled a shift from Russian suppliers.

But U.S. companies will face competition from global counterparts, like Moscow-based United Aircraft Corp., France's Dassault Aviation SA (EPA: AM) and European Aeronautic Defense and Space Company (EADS).

Suppliers who usually rely on U.K. defense spending are turning to India for business as the U.K. coalition government is expected to announce defense-spending cuts on Tuesday. The British media has reported that the Royal Air Force may lose some aircraft orders and U.K. defense suppliers could see their operating margins fall in coming years. France and Germany will also be reviewing their budgets to trim expenses, putting more strain on suppliers.

While India's growing economy has attracts more foreign investment each year, some companies are frustrated with the strict government regulation that limits foreign involvement in sectors such as technology and energy. President Obama is expected to address concerns over market access during next month's meeting with Indian officials, especially in regards to a recently passed Indian law that exposes nuclear technology firms to accident liability.

"We will not be able to support nuclear programs in countries where the nuclear liability regime is not consistent with international norms," Michael Tetuan, a spokesman for GE, told The Wall Street Journal.

These kinds of laws turn some businesses off from dealing with India, which some say has used its attraction of having incredibly high economic growth to control business and investment negotiations.

"India's pretty cocky right now," Charles Maddox, a professor of corporate law at the Jindal Global Law School outside New Delhi, told The Journal. "They're playing a brinksmanship game with the United States."

But experts say the progress made with U.S.- India relations marks a dramatic improvement from prior decades and is sure to continue.

"In any relationship where you have growing commercial activity, you're going to have challenges and disagreements," Francisco Sanchez, U.S. undersecretary of commerce for international trade, said in a recent interview. "But the advancement over the last 20 years has been significant. We need to keep plugging away."

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]]> http://moneymorning.com/2010/10/18/defense-suppliers/feed/ 0 Obama Deficit Brings Us Closer to the Brink of National Bankruptcy http://moneymorning.com/2010/02/03/obama-deficit-2/ http://moneymorning.com/2010/02/03/obama-deficit-2/#comments Wed, 03 Feb 2010 10:00:39 +0000 Martin Hutchinson http://moneymorning.com/?p=16497 Barack Obama's budget for 2011, presented on Monday, shows a deficit of $1.3 trillion for the fiscal year that ends that September. That shortfall is actually $287 billion more than the Congressional Budget Office (CBO) had projected less than a week earlier, when it had released a budget forecast of its own for that same fiscal year.

Granted, we're getting used to seeing budget deficits expand at a pretty quick pace these days. But even by government standards an increase of nearly $290 billion in less than a week is almost too much to bear!

All kidding aside, $105 billion of this $287 billion increase came about mostly because of a change in "assumptions." The CBO budget assumed that all the 2001 Bush tax cuts would be reversed, whereas the Obama budget reverses only those that applied to the rich (those with incomes above $250,000).

The CBO budget also made the ridiculous assumption that the Alternative Minimum Tax (AMT) would be allowed to revert to its 2001 level, forcing 25 million taxpayers to calculate their taxes twice - and to then pay the higher of the two estimates. That was never going to happen, and the Obama budget finally abandons that idiotic piece of fiction.

The disparity in deficit projections between the CBO and the Obama administration weren't limited just to fiscal 2011. For the period from 2011 to 2020, the CBO forecasted a budget deficit of $6.047 trillion, while the Obama budget released just days later projected a shortfall of $8.532 trillion - a difference of $2.485 trillion.

The difference in assumptions between the CBO and Obama projections explains nearly half of that difference. Of course, that still leaves the other half.

And a troublesome half it is.

To find out how these numbers may forecast a U.S. bankruptcy, read on...]]>
U.S. President Barack Obama's budget for 2011, presented on Monday, shows a deficit of $1.3 trillion for the fiscal year that ends that September. That shortfall is actually $287 billion more than the Congressional Budget Office (CBO) had projected less than a week earlier, when it had released a budget forecast of its own for that same fiscal year.

Granted, we're getting used to seeing budget deficits expand at a pretty quick pace these days. But even by government standards an increase of nearly $290 billion in less than a week is almost too much to bear!

All kidding aside, $105 billion of this $287 billion increase came about mostly because of a change in "assumptions." The CBO budget assumed that all the 2001 Bush tax cuts would be reversed, whereas the Obama budget reverses only those that applied to the rich (those with incomes above $250,000).

The CBO budget also made the ridiculous assumption that the Alternative Minimum Tax (AMT) would be allowed to revert to its 2001 level, forcing 25 million taxpayers to calculate their taxes twice - and to then pay the higher of the two estimates. That was never going to happen, and the Obama budget finally abandons that idiotic piece of fiction.

The disparity in deficit projections between the CBO and the Obama administration weren't limited just to fiscal 2011. For the period from 2011 to 2020, the CBO forecasted a budget deficit of $6.047 trillion, while the Obama budget released just days later projected a shortfall of $8.532 trillion - a difference of $2.485 trillion.

The difference in assumptions between the CBO and Obama projections explains nearly half of that difference. Of course, that still leaves the other half.

And a troublesome half it is.

In 2011, most of the extra spending seems to be devoted to a jobs program and to additional defense expenditures for the wars in Iraq and Afghanistan. It's somewhat disheartening to see that the administration can't project more progress on the budget-deficit issue during the next few years.

After all, the Obama budget even assumes that we'll be helped along by a robust economic recovery.

The lowest projected deficit in the next decade is a $706 billion shortfall forecast for the fiscal year that ends in September 2014. That doesn't sound too bad in the context of the 2009-2011 figures, but it's almost $300 billion larger than the highest federal-budget deficit in human history before 2009.

The most alarming trend of all appears if you compare the current budget with what had been projected for the fiscal 2002 budget, a forecast made in February 2001 by U.S. President George W. Bush, who was in his first year in office. As is the practice today, budget projections back then were made in 10-year increments. So it's worth comparing the spending projections for 2011 made by the Bush administration with what's actually been put into the budget.

Our finding: The February 2001 projections were hugely too optimistic; current spending is fully 41% higher than what had been projected at that time.

That has two implications. First, it shows that budgetary control by both parties since 2001 has been utterly lousy (the Republicans controlled the presidency and the U.S. House of Representatives for the 2002 through 2007 budgets, but spending still soared). Second, it shows that out-year projections a decade into the future are often ludicrously over-optimistic.

The implications for the current budget are ominous. If 2020 spending exceeds current projections to the same degree that current spending exceeds the projections made back in 2001, then spending will amount to 33.4% of 2020 gross domestic product (GDP). Add in state and local spending, and total U.S. public expenditure would exceed 50% of GDP, close to that of the worst European countries: France and Sweden.

What's more, since 2020 revenue is projected at only 19.6% of GDP, taxes would have to go up by 70% from currently projected levels to make the budget balance.

Yikes! Even if we introduced a federal Value Added Tax to try to meet that deficit, it would have to be set at an impossibly high rate.

The current budgetary shambles is the fault of two presidential administrations, and both parties in Congress. They have wrecked what back in 2001 was a perfectly solid U.S. budgetary position.

If U.S. budgetary problems continue on their current path, our elected officials in Washington will completely destroy the U.S. financial position in the next decade, and will lead the nation into bankruptcy.

We need an immediate improvement in politician behavior on both sides of the aisle.

Otherwise, it will be too late.

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]]> http://moneymorning.com/2010/02/03/obama-deficit-2/feed/ 56 Obama's Budget Adds $1 Trillion in Taxes, Balloons Federal Deficit http://moneymorning.com/2010/02/02/obama-budget-deficit/ http://moneymorning.com/2010/02/02/obama-budget-deficit/#comments Tue, 02 Feb 2010 10:00:39 +0000 Don Miller http://moneymorning.com/?p=16416
The budget blueprint for the fiscal year that begins Oct. 1 reflects the administration's struggle to find a balance between containing the spiraling federal deficit with the need to boost the economy and create jobs - both of which figure to be political bombshells in the upcoming 2010 elections.

"We're trying to accomplish a soft landing in terms of our fiscal trajectory," Peter Orszag, director of the White House Office of Management and Budget, said at a press briefing.

But the budget is certain to add fuel to the debate over the size and scope of government. As expected, Republicans railed against the administration's big spending programs and tax increases.]]>
President Barack Obama yesterday (Monday) unveiled a $3.8 trillion budget proposal that includes big tax increases on individuals and businesses, and expands the federal deficit by more than $5.5 trillion by the end of the decade, including a record $1.6 trillion next year.

The budget blueprint for the fiscal year that begins Oct. 1 reflects the administration's struggle to find a balance between containing the spiraling federal deficit with the need to boost the economy and create jobs - both of which figure to be political bombshells in the upcoming 2010 elections.

"We're trying to accomplish a soft landing in terms of our fiscal trajectory," Peter Orszag, director of the White House Office of Management and Budget, said at a press briefing.

But the budget is certain to add fuel to the debate over the size and scope of government. As expected, Republicans railed against the administration's big spending programs and tax increases.

In an interview with Bloomberg News, U.S.Rep. Paul Ryan, R-WI, the senior Republican on the House Budget Committee, called the budget "a plan for more of the same - a very aggressive agenda of more government spending, more taxes, more deficits and more debt."

As part of a plan to start narrowing the gap between proposed budget outlays and tax receipts the President's proposal revolves around a cap on so-called discretionary spending, roughly 17% of the total budget.

Freezing spending on programs outside of defense and security for three years and then holding it at the rate of inflation for the rest of the next decade would save $250 billion, the administration said.

But the budget plan also calls for nearly $1 trillion in tax increases. 

Allowing the Bush tax cuts to expire for taxpayers earning $250,000 or more would raise $678 billion.  Banks like Bank of America Corp. (NYSE: BAC) and JPMorgan Chase & Co. (NYSE: JPM) along with multinational companies like General Electric Co (NYSE: GE) would face $90 billion in new fees and levies.  And oil companies like Exxon Mobile Corp. (NYSE: XOM) would end up losing about $39 billion in tax breaks.

Individual and family taxpayers would see the top two income tax brackets rise from 33% and 35%, to 36% and 39.6%. Capital gains and dividend tax rates for earners making at least $250,000 would rise from 15% to 20%. All totaled, upper-income families would face $969 billion in higher taxes between 2011 and 2020.

But even with the proposed tax increases, the budget deficit will continue to plague the government and its citizens.

Under Obama's budget plan, the deficit would peak at $1.6 trillion this year or 10.6% of gross domestic product (GDP).  It would then gradually shrink to $706 billion, or below 4% of GDP by 2014.

But then the President's budget calls for it to drift up again. The 10-year cumulative deficit from the fiscal year 2011 to 2020 would add a whopping $8.5 trillion to the federal deficit, according The Financial Times, pushing the debt as a percentage of GDP up to 77%.

That level of debt is setting off alarm bells in some academic quarters.

Kenneth Rogoff, a Harvard University economist familiar with other countries' experiences, says the deficit could push the U.S. over an edge where interest rates soar, the value of the dollar plummets and the economy could fall into another financial crisis.

"We will hit a point where it comes on us very quickly, and you don't want to edge up to that point," Rogoff told The Wall Street Journal. "Going beyond 80% you're taking a real chance."

To keep the deficit to below 77% of GDP, the president will be forced to make politically painful choices, including the large tax increases and cuts to some domestic programs.

Under Obama's plan, the budgets of the departments of agriculture, commerce, health and human services, housing and urban development, and justice would be cut.

The plan also calls for eliminating 120 programs and consolidating 38 education programs into 11including cutting the National Park Service's Save America's Treasures program, White House officials said.

The president is also expected to ask Congress to halt funding for the National Aeronautics and Space Administration's plan to return astronauts to the moon, which will face tough sledding in vote-rich Florida.

The plan calls for $100 billion in additional stimulus spending as part of a new jobs package, including $61 billion to extend for one year the administration's "Making Work Pay" tax credit which provided $400 to individuals and $800 to couples.

It contains $33 billion in "emergency" funding this year to help pay for the administration's troop buildup in Afghanistan. Next year, war costs will reach $159.3 billion.

The basic defense budget would increase to $549 billion, which amounts to a 1.8% increase adjusted for inflation. The Department of Homeland Security would get a 2% increase.

The budget has more than doubled from $1.9 trillion in 2001, according the Office of Management and Budget's data.

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]]> http://moneymorning.com/2010/02/02/obama-budget-deficit/feed/ 9 Boeing Refurbishes 500th Super Hornet Fighter Jet, Makes Plans for Looming Dubai Air Show http://moneymorning.com/2007/11/06/boeing-refurbishes-500th-super-hornet-fighter-jet-makes-plans-for-looming-dubai-air-show/ http://moneymorning.com/2007/11/06/boeing-refurbishes-500th-super-hornet-fighter-jet-makes-plans-for-looming-dubai-air-show/#comments Tue, 06 Nov 2007 06:01:52 +0000 William Patalon III http://www.moneymorning.com/2007/11/06/boeing-refurbishes-500th-super-hornet-fighter-jet-makes-plans-for-looming-dubai-air-show/ By William Patalon III
Managing Editor
Money Morning

The Boeing Co. (BA) announced that it's delivered its 500th modified F/A-18 Super Hornet jet fighter-bomber to the U.S. Navy from the company's Aerospace Support Center at Cecil Commerce Center, located near Jacksonville, Fla.

Boeing also detailed its plans for the upcoming Dubai Air Show, which opens Sunday and runs through to Thursday. It has emerged as one of the world's key commercial air shows. And Dubai has emerged as a market investors must keep watching as the Middle Eastern nation continues to expand its sphere of economic and financial influence.

The "Super" New Hornet

The Cecil airfield – a former U.S. Naval air station – functions as a "drive-in/fly-out" facility that allows the modified fighter jets to be made available for deployment as soon the upgrade and modification work is finished.

To modernize and overhaul the jet fighters, Boeing and prime contractor Northrop Grumman Corp. (NOC) have been installing upgraded avionics and making key technological and structural enhancements to F/A-18s since the center opened in September 1999.

With more than 900 F/A-18s in U.S. Navy and Marine Corps squadrons, there's still plenty of modification work to be done. The modifications bring the older planes up to par with the more-recently built "marks," or versions, of the Super Hornet. Inspectors look for cracks, corrosion and fatigue to determine if the life of the aircraft can be safely extended. The oldest and most heavily used Hornets are in the midst of an extensive inspection process aimed at boosting each aircraft's lifespan from 6,000 to 10,000 flight hours.

Newer Hornets at Cecil Field receive upgraded display systems, miniaturized global-positioning system (GPS) receivers, helmet-mounted cueing systems and more advanced radios. The modifications give the Hornet improved communication and information systems and allow the F/A-18 strike fighter to carry the latest weapons, including the newest missiles and "smart bombs."

In January, Boeing's Cecil Field facility will begin modifying F/A-18 C- and D-model aircraft for the U.S. Navy Blue Angels flight demonstration team, which has flown the A- and B-model Hornets since 1986.

"Cecil Field is vital to the health and performance of the U.S. Hornet fleet," said Mike Rudolf, Cecil Field F/A-18 programs manager. "We've proven for almost eight years that we can successfully perform modifications and repairs and return aircraft to the customer very quickly. That's important for the [fighter pilot] in the field who depends on us to deliver improved capability. The bottom line is: We get the jets out on time."

The cost of new defense programs are soaring into the stratosphere. Aircraft programs are among the most expensive of all. As these costs rocket, retrofitting and modernizing existing aircraft has become a key strategy embraced by all branches of the U.S. military so that each service can stretch its budget allotments by keeping weapons systems in service for many additional years – if not for additional decades.

Indeed, consider the case of the U.S. Air Force Boeing B-52 Stratofortress, a high-winged strategic jet bomber that was brought into service in the middle 1950s. The B-52, also known as "The BUFF" – for Big Ugly Fat Fellow – has been retrofitted and modernized a number of times, which is the main reason it's still a frontline aircraft – even though it's much older than most of the men who fly them.

The company's Cecil air station facility has reduced its work force in recent years as Navy programs on other aircraft have wound down, but Boeing is pursuing other work for the center. One possible source of work: The V-22 Osprey, the so-called "tilt-rotor" aircraft that the U.S. Marine Corps flies.

"We're going to continue to grow Cecil Field," Don Davis, Boeing's senior manager for naval integrated logistics support systems, said in a statement.

Demonstrations at Dubai

At the Dubai Air Show, Boeing intends to highlight a range of the products and services that have been contributing to the parent company's record sales. The show will spotlight a wide range of offerings across Boeing's commercial and defense divisions. The show opens Sunday and runs through to Thursday.

"Boeing is proud of a partnership with the Middle East that stretches back more than a half century, and we are committed to meeting the needs of our customers throughout this fast-growing region and to further developing and expanding our long-term partnerships," said Tom Downey, a Boeing senior vice president.

Boeing has long considered the Dubai Air Show to be one of the world's premier aerospace exhibitions, which is why the firm said the exhibition will be well-staffed with people, products and services.

On the defense side, the company said it will showcase the capabilities of such fighter planes as the F-15E Strike Eagle and F/A-18 Super Hornet. Static displays will include the regional debut of Boeing's 737 Airborne Early Warning and Control aircraft, in addition to the E-3 AWACS, the B-1B Lancer jet bomber, the C-17 Globemaster III military transport aircraft and a UAE Land Forces AH-64A Apache attack helicopter. On the commercial side, Boeing customer Royal Jet will display a Boeing business jet.

Boeing's schedule begins on Saturday, with a press conference featuring its airliner division. On that same day, Boeing's Integrated Defense Systems unit, with its Saudi Arabian partner Alsalam Aircraft Company, will co-sponsor the Middle East Air Chiefs conference.

On Tuesday, Boeing Capital Corp. will host a financiers and investors conference, recognizing Dubai's role as an emerging center for global finance.

Issues With Emirates Airlines

Boeing executives may well use this time to try and overcome an emerging problem with the Dubai-based Emirates Airlines, a sought-after customer. Emirates says the U.S. airliner maker may fail to land a 100-plane contract worth $20 billion because of the airline's belief that the biggest version of the much-hyped Boeing 787 Dreamliner lacks sufficient "thrust," or power, from its General Electric Co. (GE) engines.

According to a report by the Seattle Post-Intelligencer and Bloomberg News, Boeing's 787-10, a 310-seat version of the under-development Dreamliner, doesn't yet meet Emirates' needs, airline President Tim Clark said. The Dubai-based airline would operate the plane to destinations including Los Angeles.

"It needs more thrust," Clark told Bloomberg during an interview in Cannes, France. "It's not a view shared by Boeing, but my instinct tells me it needs more."

Meanwhile, Boeing nemesis Airbus SAS got an order from International Lease Finance Corp. for 20 A350 widebody jets, fewer than analysts expected and smaller than the company's contract for Boeing's 787. Even so, the deal is worth $4 billion at list prices, sources told Bloomberg.

Deals with the Los Angeles-based International Lease Finance are closely watched as the leasing firm is viewed as a bellwether customer in assessing the popularity and potential success of new models of aircraft. The firm placed an order for 12 A350s in 2005 before Airbus voided the deal by modifying the airplanes. ILF agreed to buy 52 787s in June, following an initial order for 22 in 2005.

Emirates is weighing the 787-10 against the Airbus A350-900 and may order as many as 100 planes, a deal with a potential value of $20 billion at list prices, Clark said. Concern about GE's GEnx engine might mean that the carrier won't reach a decision by the time of the air show, where it had originally intended to make an announcement, he said.

Rick Kennedy, a spokesman for the Fairfield, Conn.-based GE, told Bloomberg that the company was "gratified Emirates is interested in the Genx. [But] at this juncture, it's premature, because the 787-10 hasn't been formally offered to airlines."

Boeing has more than 700 orders for the Dreamliner, valued at about $120 billion. On Oct. 10, the first delivery was pushed back by six months after supplier problems and parts shortages made it clear the original schedule was unrealistic.

All Nippon Airways Co. will get the first plane in November or December 2008.

While the delayed 787 still will be delivered five years before the Airbus A350 – a controversial program that's undergone five revisions – Emirates' Clark said the Airbus airliner has benefited in terms of design, aerodynamics, materials and propulsion.

"The A350 is now an airplane we're prepared to study seriously," Clark said told Bloomberg. "They listened, and from what we see of the A350, now it's an essentially good airplane, and it matches the 787 offering from Boeing."

Rolls-Royce Group PLC (RYCEY) offers engines for both the A350 and the 787, and has a more powerful entrant whose thrust output may better satisfy the Emirates Airlines' requirements, Clark said. Still, the CEO said he would prefer to have a choice. However, GE and Airbus have yet to reach an engine-supplier agreement.

Boeing's Buyback and Dividend Payout

Boeing last week announced plans to buy back as much as $7 billion of its common stock, the latest leg of a share-repurchase program under which the aerospace company has bought back $8 billion worth of its shares since the program was resumed in 2004.

The aerospace-and-defense-contracting company also declared a regular quarterly dividend of 35 cents a share, payable Dec. 7 to shareholders of record as of Friday (Nov. 9).

Boeing is the No. 1 U.S. exporter, and is a stock that several of Money Morning's contributors and advisory panelists have identified as one of the globally focused U.S.-based companies investors might want to research further [In fact, to see a copy of our special investing research report, "Investments for a Weak Dollar World," one of several of our research reports that list Boeing among the U.S.-based companies that will really benefit from the falling greenback, please click here. The report is free of charge].

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]]> http://moneymorning.com/2007/11/06/boeing-refurbishes-500th-super-hornet-fighter-jet-makes-plans-for-looming-dubai-air-show/feed/ 0 U.N. Awards Defense Firm Lockheed Martin $250 Million Contract in Darfur http://moneymorning.com/2007/10/17/un-awards-defense-firm-lockheed-martin-250-million-contract-in-darfur/ http://moneymorning.com/2007/10/17/un-awards-defense-firm-lockheed-martin-250-million-contract-in-darfur/#comments Wed, 17 Oct 2007 11:46:13 +0000 Investment News Staff http://www.moneymorning.com/2007/10/17/un-awards-defense-firm-lockheed-martin-250-million-contract-in-darfur/ From Staff Reports

The United Nations awarded defense contractor Lockheed Martin Corp. (LMT) a $250 million contract to build five new camps in Sudan's civil-war-ravaged Darfur region, and in the neighboring Kordofan regions for 4,100 U.N. and African Union personnel, The Associated Press reported yesterday (Tuesday).

Specifically, the six-month contract was awarded to California-based Pacific Architect Engineers Inc. – which Lockheed Martin bought in August 2006 – without bidding because of complex requirements and a short the timeline for completion, U.N. spokeswoman Michele Montas told The AP.

It is rare to see international business conducted in Darfur, but Lockheed Martin is no stranger to working in contested areas. Such is a reason why 84% of the company's net sales were made to the biggest customer in the world, the United States government.

Although the contract won't have a meaningful financial impact on the bottom line of this $45 billion company, the reputation that will follow if the project if successful is a reward. A defense company that can turn an A+ job in Darfur can pretty much prove it can handle operations anywhere.

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]]> http://moneymorning.com/2007/10/17/un-awards-defense-firm-lockheed-martin-250-million-contract-in-darfur/feed/ 0 Aluminum Giant Alcoa Awarded Major Parts Contract for New Stealth Jet http://moneymorning.com/2007/10/15/aluminum-giant-alcoa-awarded-major-parts-contract-for-new-stealth-jet/ http://moneymorning.com/2007/10/15/aluminum-giant-alcoa-awarded-major-parts-contract-for-new-stealth-jet/#comments Mon, 15 Oct 2007 19:21:06 +0000 William Patalon III http://www.moneymorning.com/2007/10/15/aluminum-giant-alcoa-awarded-major-parts-contract-for-new-stealth-jet/ By William Patalon III
Managing Editor
Money Morning/The Money Map Report

Defense contractor Lockheed Martin Corp., (LMT) has awarded aluminum giant Alcoa Inc.(AA) a $360 million contract to supply special castings for the special new stealth fighter jet known as the ‘Joint Strike Fighter.'

The U.S. military will use the Lockheed Martin F-35 Lightning II Joint Strike Fighter (JSF) replace such jet fighters as the F-16 Fighting Falcon, the F/A-18 Hornet and the Harrier jump jet currently being flown by the Air Force, Navy and Marines. It's one of the largest and most-expensive defense-procurement programs ever, with an estimated total cost of $275 billion.

The contract calls for Alcoa's Cleveland-based division – a specialist in cast and forged products – will design and produce large aluminum structural die forgings for more than 1,200 aircraft over the next 10 years. The forgings consist of 15 large wing- and engine-supporting bulkheads and six wing-box parts per plane.

Lockheed Martin expects to build more than 4,000 of the aircraft for the United States and international forces, Alcoa said.

Alcoa is expecting still more contracts related to the F-35. Other Alcoa units will provide such components as fasteners, alloy plate and high-pressure turbine blades. Those contracts are still being negotiated.

"Our engineers, operations managers and designers have worked collaboratively to offer complex die forgings that will meet weight reduction requirements and extremely tight time frames that will allow our customer to stay on schedule," Joseph E. Haniford, vice president and general manager of the Alcoa unit, said in a statement.

As part of the contract, Alcoa plans to invest $24 million in its Cleveland facility, mainly for new machinery, equipment and infrastructure improvements, said the Pittsburgh- based company, with has executive offices in New York City.

Going Long on Lockheed

Lockheed has a storied history as an aircraft company. During the so-called "Golden Age" of aviation – which lasted from the 1920s until the latter part of the 1930s – Lockheed built such fine civil-aviation airplanes as the Lockheed Vega and the Lockheed Electra. Both were flown to records by famed aviatrix Amelia Earhardt, [click on links to see both of Earhardt's Lockheed aircraft, one of which is on display a the National Air and Space Museum in Washington]. It was a modified Electra that Earhardt was flying on a record-seeking around-the-world flight when she and navigator Fred Noonan disappeared somewhere in the vicinity of tiny Howland Island in the South Pacific in 1937.

Neither Earhardt nor Noonan were ever seen again, and the Electra was never found. The mystery – which many consider as the greatest mystery in the field of aviation – continues to intrigue flying enthusiasts, even today. The Delaware-based International Group for Historic Aircraft Recovery (TIGHAR), headed by the charismatic and controversial Ric Gillespie, continues to investigate the mystery to this day.

When World War II started, Lockheed became a key part of the "Arsenal of Democracy," developing the Lockheed Hudson Mk I twin-engine medium bomber, the first U.S.-built aircraft to be used operationally by the British Royal Air Force during that conflict. Though a bomber, when a Hudson flamed a German Dornier flying boat off the cost of Jutland in October 1939, it recorded the first German aircraft shot down by the RAF in WWII.

But it was with a fighter plane that Lockheed really cemented its reputation – the "first" Lightning, the P-38, the airplane serving as the namesake for the new Joint Strike Fighter.

The P-38 Lightning was a twin-engine, twin-tailed aircraft that the German Luftwaffe nicknamed "The Fork-Tailed Devil." It was even more effective in the Pacific Theater, where the top two U.S. aces of all time – Major Richard "Dick" Bong, with 40 kills, and Maj. Thomas "Tommy" McGuire, with 38 – both flew Lightnings. Atlantic solo flight pioneer Charles "The Lone Eagle" Lindbergh, of Spirit of St. Louis fame, was a civilian advisor in the Pacific Theater, teaching U.S. Army Air Corps pilots how to stretch the range on their P-38s. He often accompanied Army pilots on long missions, flying a P-38 himself, and reportedly even shot down an enemy aircraft.

In more recent years, Lockheed has remained the same innovative aircraft pioneer. With its famed "Skunk Works" project-development unit, Lockheed developed a number of "black budget" aircraft, such as the SR-71 Blackbird, a reconnaissance aircraft that could fly so fast and so high that it was never hit by enemy fire on any of its secret missions. The aircraft has been retired for years, but many of its performance standards and achievements remain classified.

The Skunk Works scored again when it developed the F-117 Nighthawk Stealth Fighter, the odd-looking, faceted fighter-bomber that was able to pierce the night skies over heavily defended Baghdad in the First Gulf War and never trigger the Iraqi air-defense systems.

Lockheed Martin is the prime contractor on the F/A-22 Raptor, the newest Stealth jet fighter to joint the U.S. air arsenal. It beat out Northrop Grumman and its technically advanced YF-23 in a multi-year fly-off, and production aircraft are being fielded operationally.

The F-35 is even more advanced that the F-22, because of vectored-thrust technologies, which will have a major impact on takeoff and landings, and on in-flight maneuverability.

Other Lockheed Contract

Lockheed on Friday said it was awarded a $1.24 million contract from the Defense Advanced Research Projects Agency. The contract is the third phase of a program that enables the U.S. Navy to improve situation awareness in maritime operations.

Lockheed Martin will provide software upgrades to the program, called "Fast Connectivity for Coalitions and Agents Program," and install the operations at several U.S. Navy commands as part of the deal.

For investors seeking a top defense contractor for their portfolio, here are the key factors to consider about Lockheed Martin: Based in Bethesda, Md., it is the country's largest aerospace and defense contractor. During 2007, Lockheed's shares soared more than 46%, due to strong sales of everything from jet fighters-including the F-35 and the F-22 Raptor-to satellites.

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References:

  • Crosby, Francis, The Complete Guide to Fighters & Bombers of the World, Herme's House, 2006.
  • Eden, Paul (Editor), The Encyclopedia of Modern Military Aircraft, Amber Books, 2004 and 2006.

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]]> http://moneymorning.com/2007/10/15/aluminum-giant-alcoa-awarded-major-parts-contract-for-new-stealth-jet/feed/ 0 U.S. Officials Question Whether 3Com Deal Gives Defense Secrets To China http://moneymorning.com/2007/10/04/us-officials-question-whether-3com-deal-gives-defense-secrets-to-china/ http://moneymorning.com/2007/10/04/us-officials-question-whether-3com-deal-gives-defense-secrets-to-china/#comments Thu, 04 Oct 2007 12:38:16 +0000 Investment News Staff http://www.moneymorning.com/2007/10/04/us-officials-question-whether-3com-deal-gives-defense-secrets-to-china/ From Staff Reports

China's No. 1 network-equipment maker – a firm alleged to have ties to Beijing's military, as well as past links to Saddam Hussein and the Taliban in Afghanistan – could gain access to U.S. defense-network technology in the proposed buyout of 3Com Corp. (COMS), the Washington Times newspaper reported yesterday (Wednesday).

3Com on Friday agreed to be acquired by the duo of Bain Capital Partners LLC and Huawei Technologies in a deal valued at $2.2 billion. Bain Capital is a Boston-based private-equity firm that was co-founded by former Mass. Gov. Mitt Romney, currently a Republican presidential candidate, who retired from Bain in 1999.

In announcing the buyout last week, 3Com said that Huawei will "become a commercial and strategic partner of 3Com."

Huawei, a privately held firm based in the southern China city of Shenzhen, is China's largest network-equipment company, and will own less than 20% of 3Com when the deal is done, according to all parties involved. Unfortunately, it doesn't have a pristine reputation. Its highly reclusive CEO, Ren Zhengfei, is a former officer in the People's Liberation Army – the Chinese military. The company was founded in 1988 and got its start building military communications networks for the Chinese army. That's bad enough, but Ren and other company officials now repeatedly deny that there is any kind of a connection between Huawei and the PLA – a protestation virtually no one believes. As Business Week columnist Bruce Einhorn recently noted: "The company does have an image problem that makes expansion in the U.S. difficult."

And Huawei apparently really does want to expand in the U.S. market. Its domestic arch-rival, ZTE, a company that is based in the same city and that plays to the same market as Huawei, recently cut a deal to sell equipment to Sprint Nextel Corp. (S). And last year, ZTE managed to sign a collaboration deal with U.S. leader Cisco Systems Inc. (CSCO). At the same time, all Huawei was able to achieve was to get hauled into court by Cisco for allegedly infringing on its technology patents (a Texas judge ordered the Chinese company to change its products so that Cisco's technology wasn't utilized).

Huawei Technologies has been linked to the United Nations 'oil-for-food' scandal, which is alleged to have involved millions of dollars in payoffs to Saddam's regime during a time of U.N. sanctions.

The Washington Times article and other published reports say that Huawei has been involved in illicit projects in several "hot spots" around the world, especially in areas hostile to the United States. Huawei technicians also allegedly violated U.N. sanctions in Iraq in the early 2000s, by providing a fiber-optic telecommunications network that Iraq military is said to have used to tie together its air-defense network. The CIA-led Iraq Survey Group stated in its final report that Huawei and two other Chinese firms "illicitly provided transmission switches" for fiber-optic communications in Iraq from 1999 to 2002. When the United States discovered the network and what it was being used for – the air-defense system fired missiles at allied aircraft enforcing the "no-fly-zone" rules – it launched an air strike and bombed the China-engineered high-speed fiber-optic network.

Huawei did work for the ruling Taliban militia before it was pushed from power in the early part of this decade. The Chinese company either provided components for, or helped build, a telecommunications-switching network in Kabul, Afghanistan.

The newspaper reported that the merger deal follows a July computer attack on the Pentagon that U.S. intelligence officials say was engineered by Chinese military hackers. The hackers were detected breaking into Pentagon computers, including an e-mail system close to Defense Secretary Robert M. Gates. An unnamed defense official told the newspaper that this deal comes just as the Pentagon has moved to thwart the "large numbers" of attempted computer intrusions from Chinese computer "hackers and spies."

"And now we are proposing to sell the PLA a key to our front door. This is a very dangerous trend," that unnamed defense official told the Washington Times.

Said another defense official, who is also very concerned about this deal: "Huawei is up to its eyeballs with the Chinese military."

California Republican Rep. Duncan Hunter, a ranking member of the House Armed Services Committee, said he is worried the deal will lead to the loss of sensitive technology to China.

According to The Associated Press, Bain announced yesterday that it would submit the deal to a national security review, a process usually conducted by the federal Committee on Foreign Investment in the United States, or CFIUS, a 12-member group of top White House economic-policy experts and several cabinet-level officials. CFIUS was formed in 1988, the same year as Huawei. The group will study how much control, influence and involvement Huawei will have, including access to both core and defense-related technologies.

According to published reports, a 3Com subsidiary does provide both the U.S. Army and the Pentagon itself with intrusion-detection equipment, and some defense insiders worry that these contracts will enable Huawei to deduce vulnerabilities in key computer networks.

Despite the security concerns, a business case can be made for the deal.

In a conference call that discussed the deal, 3Com CEO Edgar Masri said that Bain has great connections in China as well as in Europe, markets where the networking company is seeking to expand.

Although there's been tremendous concern about the involvement of Huawei, and China, 3Com already previously operated a joint venture with Huawei in China called Huawei-3Com Ltd.

But 3Com bought out its partner earlier this year, paying $886 million to do so. The joint venture had been started in 2003, and was said to have been fairly successful. Indeed, 3Com's China business may well be the most valuable part of the company going forward, which makes sense that Huawei would want it all.

3Com was once a much bigger player in the U.S. market, but kept losing ground to Cisco Systems and others and its stock has basically traded in a fairly narrow range ever since, as it has struggled to regain past greatness.

In its most recent fiscal year ended in May, however, 3Com experienced somewhat of resurgence, aided in large part by its Chinese venture. The company boosted revenue by nearly 60%, to $1.27 billion from $794 million generated during fiscal 2006.

Masri said 3Com reviewed a number of "strategic alternatives" before settling on a sale to Bain and Huawei. The deal is expected to close in early 2008, 3Com said.

Because Huawei ranks as the largest maker of network equipment in China, that company increasingly finds itself squaring off against such traditional industry rivals as Cisco Systems (CSCO) and Motorola Inc. (MOT), both of which already do extensive business there.

Experts theorize that any more by U.S. lawmakers to block Huawei would likely lead to retaliation in China.

The all-cash offer values Marlborough, Mass.-based 3Com Corp. (COMS) at more than $5.30 a share. The bid represented a 44% premium over 3Com's closing price last Thursday of $3.68. The shares gained 34.24% for the week.

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