Night (vision) shift: Exelis adapts to new US realities
Can high-tech night vision goggles help change the nature of global warfare?
Defense contractor Exelis is certainly betting on it. At a minimum, the company thinks advanced tech devices—such as night vision goggles—will help improve military intelligence in a world where less money will be spent on bullets and tanks. Surveillance and intelligence gathering are expected to be linchpins of U.S. military research and development activities, amid the winding-down of conflicts in Iraq and Afghanistan.
Less spending on traditional military staples like rifles, ammunition and armor means the military is becoming increasingly reliant on high-tech to get the job done.
The company is developing solutions like next generation night vision goggles that transmit real time data, as well as tricked-out audio-visual equipment that collects information in the field.
"This is where our customers want to go," said Robert Durbin, Exelis' senior vice president for strategy, in an interview. Technology almost "puts commanders on the ground, seeing what [soldiers are] seeing. It helps leaders make better decisions."
In a post-Iraq and Afghanistan world, the stakes couldn't be higher. Research firm IDC Government Insights expects that the Pentagon will spend more than $34 billion next year just on information technology solutions alone. That amount, however, is lower than the 2010 peak of $37.7 billion—underscoring how the U.S. is becoming choosier about where it doles out its cash.
Against the backdrop of Washington's polarizing budget battles, the world's largest military expects to cut $500 billion through the year 2021, Defense Secretary Chuck Hagel said in a recent speech. One of the areas he identified as a cost saver was weapons modernization—one of Exelis specialties.
Exelis provides a range of services for several government agencies, including NASA and the Federal Aviation Administration. Defense is a linchpin of the company's solutions, which include providing information management, communications and logistics support to all four branches of the U.S. military. Exelis posted revenues of $5.5 billion in 2012 and its stock, trading at about $16, is near a 52-week high.
The company is particularly upbeat about prospects for its night vision goggles, which Exelis bills as a way to enhance tactical intelligence. The goggles use software that integrates video, voice and data that allows commanders to see what soldiers in the field see and send instructions similar to a text or instant message. According to Durbin, the U.S. military isn't the only potential market for the devices.
"We are looking to provide this for both domestic and international customers," he said, identifying the International Security Assistance Force (ISAF) in Afghanistan—which will shift toward a more advisory role once the U.S. winds down its involvement there—and the Italian government as two potential clients.
In an environment with less money being apportioned to the Army and Marines, Durbin said Exelis will concentrate its efforts on the Navy and Air Force.
"We all know there will be less boots on the ground going forward," he said. With "less capability from a ship/airplane/boots soldiers on the ground perspective … you do that by enhancing nonlethal capabilities. ... That's where we have refocused ourselves."
—By CNBC's Javier E. David.