* To launch 150 mln stg share buyback, pay down debt
* Deal lets UK defence technology firm focus on core businesses
* Says U.S. defence market still challenging (Updates with CEO and analyst comments, share price)
LONDON, April 22 (Reuters) - British defence technology firm QinetiQ agreed to sell its U.S. services division for up to $215 million, which it will use to help launch a share buyback and pay down debt.
The former research arm of Britain's Ministry of Defence said on Tuesday the sale to U.S. engineering group The SI Organization would allow QinetiQ to focus on its core British defence and products business and on expanding in cybersecurity.
It first flagged the U.S. services division's possible sale last May after it became one of many firms hurt by cuts to the U.S. defence budget, which saw QinetiQ write down 256 million pounds ($430 million) of the arm's value.
The division, which accounted for 36 percent of QinetiQ's sales in its 2012/13 financial year, posted a 13 percent decline in first half orders in November.
"Tough market, for us competitively disadvantaged, therefore we made the decision that the business had a better future with a U.S. national company," Chief Executive Leo Quinn told Reuters.
"Defence globally, and predominantly the United States, is a contracting market... and nobody knows what the future is going to be. But it doesn't look like in the near term you're going to see growth restoring to defence spending in the U.S."
The Pentagon is looking to implement nearly $1 trillion cuts in projected spending over a decade as required by the 2011 Budget Control Act.
Under the conditional agreement, QinetiQ will sell the unit for an initial cash sum of $165 million, which could increase by $50 million depending on the division's gross profit over the year to March 2015.
QinetiQ said it would use the cash raised and money from its balance sheet to launch a 150 million pound share buyback and to pay down debt. The firm has private placement debt of 150 million pounds
QinetiQ expects the deal, which requires shareholder approval, to complete in the second quarter of 2014.
J.P. Morgan Cazenove, UBS and Stone Key Partners advised QinetiQ. At 0904 GMT, its shares were down 0.7 percent at 219.7 pence.
($1 = 0.5951 British Pounds) (Editing by John Stonestreet)