From Barron's, April 28:
A start-up is aiming to do to Lockheed Martin what Tesla did to Ford Motor. It might disrupt the entire defense business along the way.
Anduril, founded in 2017 and now valued at more than $30 billion, aims to become a prime defense contractor, building weapons systems using advanced, commercially available technology quickly and at scale, rather than bidding on cost-plus contracts for exquisitely designed, expensive, low-volume systems as traditional defense companies do. It seeks to put autonomy and software at the core of its products, as Tesla has done in upending the auto industry.
Anduril’s “job is to compress the [defense] market,” says Greg Martin, managing director at the private market exchange Rainmaker Securities. “Take the defense budget from $900 billion to $500 billion without losing lethality.”
Those numbers are theoretical, but they highlight the goal of leveraging readily available technology and manufacturing processes to lower costs.
The Costa Mesa, Calif., company, established by tech billionaire Palmer Luckey, Brian Schimpf, Joseph Chen, Matt Grimm, and Trae Stephens, feels more like a tech start-up than a military contractor. The core of its technology is an artificial intelligence brain called Lattice, used in the company’s drone-tracking Sentry tower, its Ghost reconnaissance drone, its Roadrunner interceptor drone, and the autonomous unmanned aircraft Fury, which can collaborate with manned fighter jets.
“On top of that, Lattice is being used to add autonomy capabilities to legacy platforms,” Anduril’s Executive Chairman Stephens tells Barron’s.
A high school senior during the September 2001 terrorist attacks, Stephens started in the intelligence industry after college. A few years after that, he left to join Palantir Technologies. “We set off on this crazy journey to figure out to sell software to the DOD,” he says. “Turns out [that is] really hard.”
Palantir, which is currently valued at some $250 billion, managed to crack the code.
In 2013, Stephens joined the Founders Fund, the Silicon Valley venture capital fund co-founded by Peter Thiel, and was given the task of finding another Palantir or SpaceX. He didn’t discover a slam-dunk winner, but he did find an opening in the market for weapons systems that leverage modern software.
The way he discusses software and its melding with hardware sounds more like remarks from Nvidia CEO Jensen Huang or Tesla CEO Elon Musk than commentary from a traditional defense company. That puts Anduril in competition with the largest technology companies. “The best software engineers in the world, the best hardware engineers in the world, they have options of where they can go at work,” says Stephens. “If we can’t win [that talent], we have no reason to exist.”
Nor can Anduril meet the Defense Department’s needs exclusively with software: It also has to make things. Vertically integrated large-scale manufacturing is part of its strategy. In January, the company said that Columbus, Ohio, will be the location of Arsenal-1, its first so-called hyperscale factory.
Vertical integration is great in theory but not easy for an upstart. Planes, bombs, and drones are complicated. “How many parts does it take to build an airplane,” asks AeroDynamic Advisory managing director Richard Aboulafia. “All of them.”
Managing its supply chain will be key to Anduril’s growth, he says. Aerospace suppliers, for example, won’t easily be able to double their engine production to make Anduril’s collaborative combat aircraft, designed to fly alongside the Air Force’s coming F-47 sixth-generation fighter jet.
“We have to make sure that we understand where our vulnerabilities are all the way down the raw materials…making sure we have multiple vendors for components,” says Stephens. “We are [also] leveraging commercial technologies as broadly as we can…if you go back and you look at the Sentry tower project, almost everything is off the shelf.”
Challenges aside, “It’s fantastic to have new competition,” says Aboulafia. “It’s also fantastic they have access to so much investor cash.”
The company has the money required to grow and has no immediate plans to go public, Stephens says. It is benefiting from private markets’ tendency to channel the lion’s share of available finance to companies such as SpaceX and Anduril, which are seen as winners....
....MUCH MORE
We have quite a few posts on Anduril, here are a few that may be of interest:
Palmer Luckey's "Anduril Plans US Drone Dominance With 5 Million Sq Ft Smart Weapons Factory"
That's a big roof....
Microsoft wants to quit working on Army VR goggles, hand contract to Anduril
These upstart defense contractors seem to live in a world of their own. I just saw that Palantir has a market cap larger than Lockheed Martin, Northrop Grumman and General Dynamics, combined.
Mr. Luckey founded Oculus VR at age 20 and two years later sold it to Meta for $2 billion in cash and stock....
Drone vs. Drone: Palmer Luckey's "Anduril in talks to raise up to $2.5B at $28B valuation"
That last has more backlinks if the reader is interested.
