August 14, 2018 | International, Aerospace, Naval, Land, C4ISR
By: Jill Aitoro
WASHINGTON — The secret to tackling the defense information technology market may be scale.
Looking specifically at the pure-play IT companies that landed on the 2018 Defense News Top 100 list, many of those that have doubled down in some capacity saw defense revenue increase during fiscal 2017. That came on the tail end of another trend among the largest defense primes, to get out of the IT business.
“The evolution started a couple years ago, where the large defense primes who had boned up on IT service work during the war [on terror] started to realize that for a variety of reasons they might not be able to compete as effectively, or extract the returns they want out of a business like that,” said Jon Raviv, senior analyst and vice president for aerospace and defense at Citi Research.
Divestitures followed, and pure-play IT companies were able to quickly scale up not just in size and their ability to support massive contracts, but also in capability set. The acquisition of Lockheed Martin's IT business transformed Leidos from a $5 billion company to a $10 billion company. That deal closed in late 2016, explaining how the company saw double-digit growth in defense revenue in both 2016 and 2017 — despite the buy actually making the company less defense heavy overall.
Similarly, CACI closed on the acquisition of L3 Technology's National Security Solutions for $550 million in February 2016 — three months before the end of its fiscal year. The associated revenue contributed to the 16 percent increase in defense revenue during 2017.
Leidos CEO Roger Krone, in an interview with Defense News in 2016 soon after the acquisition closed, pointed to “scale, but not scale for scale's sake” as a big factor in the buy — noting, too, the importance of balancing the portfolio and geographic distribution. He also pointed to sheer numbers — 15,000 employees specifically — many with security clearances.
The trend does seem to be continuing. CSRA chose to not participate in the 2018 Top 100 because its $9.7 billion acquisition by General Dynamics closed by the time data collection for the list kicked off. While General Dynamics is a top defense prime, its IT business functions as a largely separate entity, similar to the pure-play IT companies. The acquisition of CSRA, which reported $2.25 billion in defense revenue for fiscal 2016 — will add significant scale to GDIT. It is also likely to influence the company's Top 100 rank next year.
The future promises more cyber and IT-related merger and acquisition activity in the vein of that deal, according to Daniel Gouré, a vice president with the Lexington Institute think tank.
“Raytheon is still in acquisition mode with cyber, so it's an area that's still kind of churning,” he said. “I wouldn't be surprised to see some of these big players acquire some of the more defense-oriented cyber players.”
Unclear is what the sweet spot may be for those exclusively IT-focused firms.
“Where we sit right now, it's not clear what the right size is,” Raviv said. “GDIT and Leidos are about $10 billion in sales; SAIC and CACI and ManTech are lower tier. All of those companies say they are happy with scale but could do a deal. Whether they call it scale, or marrying capability sets — it's all marketing, I suppose.”
And there are other tactics that achieve scale without acquisition. Perspecta emerged on the 2018 Top 100, having launched June 1, 2018 through the combination of DXC Technology's U.S. public sector business, Vencore, and KeyPoint Government Solutions. As one entity, Perspecta reported $2.73 billion in defense revenue and ranked 37. To put that in perspective, Vencore ranked 67 in last year's list, with $886.59 million in defense revenue. And all of these pure-play companies are increasingly marketing themselves as conduits to the “nontraditional players” that the Pentagon is so keen to attract. Amazon Web Services, for example, will often partner with government IT companies on defense contracts to hand off some of the contracting morass.
That said, for all the potential, the bulk of the defense IT market is notoriously fickle. Services often set aside IT projects in an effort to preserve platform buys, and margins can be low. Agencies also struggle to balance upkeep of existing systems versus modernization efforts versus research and development into the next great technological marvel.
But as Raviv noted, it's all IT.
“Yes, there are companies working on high-end cyber, the ability to launch attacks through cyberspace or to harden the communication node on a new missile so it can't be hacked by, say, China. And while the word cyber came up a lot three or four years ago, now you hear a lot about AI, autonomy and machine learning. But it's all technology. And it's a lot of smart people working on a lot of advanced things many of us don't understand.”
August 16, 2022 | International, C4ISR
The Pentagon will use the software as part of its System for Insider Threat Hindrance, or 'SITH,' in another apparent military reference to Star Wars.
July 10, 2018 | International, Aerospace, C4ISR
By: Maddy Longwell   BAE Systems is transitioning its Compass Call electronic warfare system to a new type of aircraft. In a July 9 news release, the company said that under its Cross Deck initiative the system will be used on the more modern and capable EC-37B aircraft, replacing the aging EC-130H aircraft that has been used since 1981. “The cross-decking program enables the Air Force to maintain existing, unmatched EW mission capabilities in an economical business jet that can fly faster, higher, and farther than its predecessor, improving mission effectiveness and survivability,” said Pamela Potter, director of electronic attack solutions at BAE Systems. According to BAE Systems, the EC-37B is a special-mission Gulfstream G550 business jet that is heavily modified to meet Air Force requirements and will provide a more modern electronic attack platform thanks to reductions in weight and operating costs, as well as the ability to operate at a higher altitude and at longer ranges. The Compass Call system enables the Air Force to disrupt enemy command-and-control operations. The system also has enhanced stand-off jamming capability and allows the Air Force to counter communication and radar threats. Modifications to the first G550 have already begun and BAE Systems, which has partnered with L3 Technologies to transition capabilities, says it expects the first two EC-37B with Compass Call to be fielded by 2023, with a total of 10 planned. BAE Systems also said that it will continue to provide support for the EC-130H fleet while the cross-decking continues. https://www.c4isrnet.com/electronic-warfare/2018/07/09/air-force-moves-to-improve-electronic-warfare-effectiveness/
July 10, 2020 | International, Land
Plymouth, Minn. – July 9, 2020 – Northrop Grumman Corporation (NYSE: NOC) received a contract award from the U.S. Army's Project Manager for Maneuver Ammunition Systems (PM-MAS) to develop the next generation airburst cartridge for the 30mm XM813 Bushmaster® Chain Gun®. The gun and ammunition function as a system and will provide greater capability for the Army's up-gunned Stryker Brigade Combat Team fleets. “Northrop Grumman is leading the way in developing new ammunition types that provide existing gun systems with increased capabilities to defeat difficult targets ranging from threat drones to targets in defilade positions,” said Dan Olson, vice president, armament systems, Northrop Grumman. “Our air bursting technology is proven and the addition of this new round will provide the Army with an even more capable gun system for our soldiers.” The 30mm x 173mm airburst cartridge will feature a contact set fuze design with three operational fuze modes: Programmable Airburst, Point Detonation and Point Detonation with Delay. The initial contract will fund the completion of the engineering and manufacturing development (EMD) phase and final qualification by the Army. Northrop Grumman will also begin deliveries this year of the first airburst type cartridge to support the U.S. Army's Germany-based, 2nd Cavalry Regiment's Stryker Infantry Carrier Vehicle (ICV) fleet that were recently ‘up-gunned' with the company's 30mm Bushmaster® Chain Gun®. The new airburst cartridge in development also will support additional U.S. Army platforms to include, but not limited to, the future Stryker Brigade Combat Teams. The newly fielded gun system nearly doubles the range of the platform's current .50-caliber machine gun. The addition of an airburst cartridge provides a complete family of ammunition that arms the crew to meet the challenges posed by peer and near-peer adversarial threat systems. Northrop Grumman solves the toughest problems in space, aeronautics, defense and cyberspace to meet the ever evolving needs of our customers worldwide. Our 90,000 employees define possible every day using science, technology and engineering to create and deliver advanced systems, products and services. Media Contact Jarrod Krull +1 (763) 744-5371 jarrod.krull@ngc.com View source version on Northrop Grumman: https://news.northropgrumman.com/news/releases/northrop-grumman-delivering-next-generation-ammunition-capability-to-us-army