Technology is playing a greater role in U.S. defense as the country shifts its focus from counter-insurgency to near-peer competition, L3Harris Technologies CEO Bill Brown told CNBC Thursday.
"The competition of the future, the war fight of the future, is going to be based on new technology," Brown said in a "Mad Money" interview with Jim Cramer. "We're aggressively leaning into this because technology is really, really going to drive the future."
L3Harris, the aerospace and defense giant that formed via a merger between Harris Corporation and L3 Technologies about a year ago, is spending roughly 4% of its revenue on research and development in order to capitalize on the space, Brown explained. L3Harris has about $18 billion in annual revenue.
The company bills itself as a technology firm that sells into defense and national security markets. The R&D investment is directed toward actionable intelligence, war-fighter effectiveness and spectrum superiority. L3Harris' portfolio spans military radios, air-traffic-control systems and space hardware.
"The threats are becoming higher, greater — not lower," Brown said. "You know, we see aggressive actions by China, by Russia, by Iran, by North Korea. Those threats are out there. If anything, they're getting worse."
L3Harris is the sixth-largest defense contractor by market value, according to Factset. Boeing, Lockheed Martin and Raytheon Technologies are among the leaders in the space.
President Donald Trump in February requested that Congress earmark $740.5 billion for national defense for the forthcoming fiscal year, up from the $738 billion in the current budget. The figure includes $705.4 billion for the Department of Defense.
The Trump administration has padded the Pentagon budget since Trump arrived to the White House in 2017. The defense budget for the fiscal year 2020 is $712 billion, about 6% more than the $670 billion approve for 2018. The spending placed an emphasis on the need for nuclear weapons and R&D for hypersonics, 5G, and artificial intelligence.
Defense officials have spoken on the need to fend off threats from powers like Russia and China as the country tamps down on conflicts in Iraq and Afghanistan.
When asked if investors should be worried about future defense spending due to the upcoming election in November, Brown said there's no need to be "worried."
L3Harris client base, additionally, spans more than 100 countries.
"Going against China requires technology. It requires delivering platforms to the fight, and those platforms have to get connected ... across space, airborne, ground, maritime," he explained. "Connecting those platforms means resilient networks, communications links, communication through jamming, ISR capabilities – all of the things that are really are in the sweet spot of this company called L3Harris."
Shares of L3Harris fell 5% during Thursday's market-wide sell-off. The stock closed at $196.51, within 1% of its stock price at the start of the year.
The stock remains about $35 off its February highs.
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