How Anduril's Palmer Luckey plans to take on Boeing and Lockheed Martin

Key Points
  • After leaving Oculus, Palmer Luckey started Anduril with a mission to build cutting-edge defense technology for the U.S. government.
  • Traditional defense contractors "do not have the world's best talent when it comes to artificial intelligence, computer vision, and machine learning," Luckey said.
  • CNBC interviewed Luckey at the company's headquarters in Irvine, California.
Watch CNBC's full interview with Anduril founder Palmer Luckey
Watch CNBC's full interview with Anduril founder Palmer Luckey

At the Anduril Industries testing site in southern California, engineers are hard at work experimenting with a custom-built drone called the Ghost that can weigh up to 55 pounds and reach speeds of 85 miles per hour.

Anduril also makes the Anvil, a quadcopter that can fly 100 miles an hour and was recently purchased by the U.S. military to be tested by special forces soldiers. Company executives refer to the unmanned vehicles as "smart eyes in the sky," and they're finding a market among government agencies.

Founded in 2017 by Oculus creator Palmer Luckey, Anduril has signed contracts with the U.S. Department of Defense, the Department of Homeland Security and the U.K. Royal Marines. Luckey is going directly after entrenched contractors like Raytheon, Northrop Grumman, Lockheed Martin, Boeing and General Dynamics, which he describes as old and slow. Anduril's focus is cutting-edge defense systems with a focus on modern technologies like artificial intelligence.

There's plenty of business available. The top 100 global defense companies generated defense-related revenue of $490 billion in fiscal 2018, according to Defense News.

"Lockheed, Raytheon, and the traditional defense companies are good at building some things," Luckey told CNBC in an interview. "They are good at building aircraft carriers. They are good at building fighter interceptors. But they do not have the world's best talent when it comes to artificial intelligence, computer vision and machine learning. That is why our company focuses on that. We think we can add a lot of value there that other people cannot necessarily add."

Matt Grimm, Anduril's chief operating officer, says other key advantages are that the products are cost-effective and the company emphasizes "speed to market." Anduril recently reeled in $120 million at a valuation of close to $1 billion from Founders Fund, General Catalyst, 8VC and Andreessen Horowitz.

'Things don't move fast when it comes to defense'

Still, industry analysts are cautious. They say that Luckey and his 145 employees should expect a fight, noting that the incumbents are big companies with sizable research and development budgets and a long history of working alongside U.S. government agencies.

"It is hard to displace established defense companies," said Jim Corridore, an analyst at CFRA. "Things don't move fast when it comes to defense. Changes aren't made rapidly."

Corridore also says that "these are established players that fight for every dollar, and they also have big lobbying arms."

At age 27, Luckey is of a different time and place. Born and raised in Long Beach, California, his father worked as a car salesman while his mother homeschooled Luckey and his three sisters. He started college at age 15, but dropped out at 19. A dedicated gamer, he then built virtual reality company Oculus and sold it to Facebook in 2014 for more than $2 billion.

Three years later, Luckey says Facebook fired him because of his political views, specifically his support of President Trump. (Facebook CEO Mark Zuckerberg has denied that allegation, saying that a "personnel matter" led to his dismissal).

Jillian D'Onfro | CNBC

Luckey regrouped and set his sights on the defense industry, which he says is well-suited for disruption. In part, that's because many tech companies appear unwilling to collaborate with the U.S. military. Microsoft, Google and Salesforce, for example, have all faced protests from employees because of various government contracts.

That's provided an opportunity for a nimble start-up to win business with the right team of technologists. Anduril's leadership includes Chairman Trae Stephens, a partner at Founders Fund, and CEO Brian Schimpf, who led Cornell University's autonomous research vehicle program. Stephens and Schimpf both previously worked at software company Palantir. Joe Chen, an Anduril co-founder, was one of the first employees at Oculus, where he was product lead.

Today, Anduril designs and builds drones as well as what it calls the Sentry Tower, a 32-foot tower outfitted with radars, cameras, and software capable of detecting and identifying motion within a two-mile radius. The towers are now deployed on U.S. Marine Corps bases and on the U.S.-Mexico border by U.S. Customs and Border Protection.

Correction: A previous version of this story incorrectly quoted Zuckerberg, when he called the firing of Luckey a "personnel matter."

WATCH: CNBC talks to Palmer Luckey

Watch CNBC's interview with Oculus co-founder Palmer Luckey
Watch CNBC's interview with Oculus co-founder Palmer Luckey