General Dynamics Corporation (GD) was awarded two contracts by the U.S. Army to develop and implement fixed and mobile computing capacity for the Area Processing Centers Army Private Cloud, or APC2, initiative. These contracts for five years are multiple-award, indefinite delivery and indefinite quantity contracts. They have a combined potential value of $249.8 million.
These contracts were awarded to General Dynamics One Source, a joint venture of three General Dynamics companies: General Dynamics Information Technology, General Dynamics Advanced Information Systems and General Dynamics C4 Systems.
APC2 encompasses all Army information capabilities such as collecting, processing and storing information for warfighters. Through this program, the Army plans to lower application migration, hosting, administration and maintenance costs through cloud computing. It would also help to reduce the number of data centers it operates.
Under the terms of the contract, General Dynamics will have to establish a secure, reliable and cost-efficient managed service cloud computing platform. The company via the platform will have to provide a mobile data center solution to meet urgent army needs in contingency operations, or where rapid or temporary computing is critical.
Headquartered in Falls Church, Virginia, General Dynamics engages in mission-critical information systems and technologies; land and expeditionary combat vehicles, armaments and munitions; shipbuilding and marine systems; and business aviation.
General Dynamics was the third largest U.S. defense contractor in terms of revenue in fiscal 2011, after The Boeing Company (BA) and Lockheed Martin Corporation (LMT). The company is one of the two contractors equipped to build nuclear-powered submarines in the U.S.
General Dynamics’ revenue exposure is spread over a broad portfolio of products and services in business aviation; combat vehicles, weapons systems and munitions; shipbuilding design, repair and construction; and information systems, technologies and services. Diversification of revenue through exposure to a number of uncorrelated markets intends to keep the overall growth momentum steady.
General Dynamics continues to benefit from strong congressional support for its programs in the 2012 defense budget. Going forward, the company’s focus will be on revival in the business jet market (Gulfstream) along with programs such as the Warfighter Information Network Tactical (WIN-T) and Joint Tactical Radio System (JTRS) in the IS&T division. Similarly, the Combat Systems and Marine Systems segments will receive a boost from higher volumes in the U.S. military vehicle business (Stryker combat vehicles and Abrams tanks) and ship programs DDG-51, Virginia class submarines and the Mobile Landing Platform program.
General Dynamics’ total order backlog however, decreased to $57.4 billion at the end of fiscal 2011 from $59.6 billion at fiscal-end 2010. Going forward, the U.S. economic fundamentals are basically being kept on a leash as the Euro-crisis continues to cast its shadow over the financial markets, keeping risks of further cutbacks in future defense budgets at a high level.
The company presently retains a short-term Zacks #4 Rank (Sell). We have a long-term Neutral recommendation on the stock.
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