How one company rides market trends to sustain growth
- By Mark Hoover
- Oct 10, 2013
Mercury Systems is in a real sweet spot, according to executives. The company is poised for growth even during one of the most difficult financial periods in government contracting history, and it’s thanks in part to where the market is headed.
Founded in 1981, Mercury provides commercially developed, open sensor and big data processing systems, software and services for commercial, defense and intelligence markets.
The company has thrived over the past 32 years because of an ability to catch and ride trends in the market. In 2012, the company reported revenues of $245 million, compared to $228.7 million in 2011.
“We basically solve very difficult sensor processing challenges, and as a result of that, I think we’ve come up with a lot of very unique innovations in the defense electronics space. The heart of what we do and who we are is innovation,” said Mercury president and CEO, Mark Aslett.
Right now, there are two main trends that the company will put its innovative spirit toward: an increased focus by the U.S. government on the Asia/Pacific region, and increased outsourcing by prime contractors to companies like Mercury in light of sequestration.
“As we transition toward the Asia/Pacific region, we are going to face adversaries who are much more technologically superior and more sophisticated than the ones that we currently face, and as a result, we’ve been seeing a number of important upgrades to platforms,” Aslett said.
These upgrades are typically radar and electronic warfare upgrades, and as a company who does both, Mercury sees healthy opportunities ahead.
Innovation helps here; “We’re investing some 20 percent of our revenue annually on our own research and development to develop these next generation sensor processing subsystems, and we sell on commercial terms to the large defense primes,” Aslett said.
This is where the other trend comes into play: a rise in the amount of work that is outsourced by large primes to smaller, commercial companies like Mercury. One of the reasons for this is a shift in the way the government awards contracts.
“One of the major changes that we see occurring is that the government is shifting the way in which they contract with the primes from what’s known as cost-plus-type contracting, where really the majority of the risk is with the government, to firm-fixed-price contract awards,” Aslett said.
In terms of employees, primes have been growing exponentially over the past decade, which works well under a cost-plus model, he added; however, primes are now being forced become more efficient, which can mean fewer employees.
“The way that they’re actually doing that is by outsourcing work to commercial companies, such as Mercury, who in essence can do things much more quickly and more cost effectively than the in-house engineering organizations of our customers,” Aslett said.
Since the company’s largest customers are Lockheed Martin, Northrop Grumman and Raytheon, this is good news for Mercury.
Aslett also sees a developing trend which isn’t only good for Mercury, but could be good for any big data processing firm: with all of the upgrades that are being made to military platforms, a vast amount of data is being generated.
“As a result, we’re seeing that the military is pushing to add more and more processing power on board the platforms,” Aslett said.
That trend will play into Mercury's strengths as well, he said.