General Dynamics' chip supply issue is far from its alone

Everything in the world runs on computer chips and there are simply not enough to go around, as General Dynamics is finding out with respect to its IT product business.

The world does not have enough computer chips to go around for reasons far too long to list and complex to run through here. But one reason is because more of everything in the world runs on computer chips.

Including substantially all defense electronics as the U.S. government works through how to bring more chip manufacturing back to the United States as the pandemic puts stress on the supply chain.

During General Dynamics’ second quarter earnings call Wednesday, CEO Phebe Novakovic told investors the company is working through a chip shortage of its own with respect to the IT hardware and software business.

(For context: this the first mention I have heard on a publicly-traded government technology company's earnings call about the global chip supply crunch since it started to become a very big deal. This episode of Project 38 from June delves into that topic and what it means for federal agencies and industry.)

Novakovic told analysts that lack of chips for certain products was one reason for a “modest decline” in second quarter revenue at General Dynamics Mission Systems, which makes communications and cyber products for predominantly defense and space customers.

GD’s second quarter regulatory filing indicates sales at Mission Systems fell approximately 6.1 percent year-over-year to $1.1 billion.

Mission Systems is one of two units alongside the IT services business that make up the Technologies segment, which saw sales climb 3.2 percent over last year’s second quarter to $3.1 billion.

Factor number two Novakovic cited as part of the decline at Mission Systems was the divestiture of its satellite antenna business to CPI, which closed in June of last year.

General Dynamics is of course far from the only company to feel the pinch of disruptions to the overall chip supply chain. As Novakovic said, “we and others have had” to deal with the shortage “and are working assiduously to address” that problem.

She expects the Mission Systems business’ own issue with acquiring the chips it needs to be remedied in the second half. Both Novakovic and Chief Financial Officer Jason Aiken believe that resolution will free the unit to realize measured gains this year.

“Assuming that business can overcome some of the supply chain issues that they’ve seen, which at this point they’re getting good signals that they’ll be able to in the second half, we ought to see some modest organic growth out of that business for the full year,” Aiken said.

General Dynamics now expects this year’s revenue out of its overall Technologies segment to total $13 billion, down roughly $200 million from the initial guidance in January. But GD also lifted its expectation of the segment’s operating margin to 9.8 percent versus the initial outlook of 9.5 percent.

Last year’s revenue split in the Technologies segment was $7.9 billion in the GD Information Technology services business and $4.7 billion at Mission Systems, according to the company's 2020 annual report.

On the other hand, GDIT posted a 9.9-percent revenue gain in this year’s second quarter to $2 billion as the company began to work on new contracts it had been awarded previously.

Novakovic said GDIT is also awaiting protest rulings over another $4.6 billion in potential contract value, including “two sizeable awards challenged by competitors,” the unit could secure if those decisions go its way.

Protests are one of two factors GDIT is dealing with today that Novakovic cited, one of which remains an overhang she has spoken of before.

“We have seen a delay in contract awards from two fundamental factors. One, there’s been an increasing elongation in the customers’ decision cycle and two, we’ve seen increasing propensity of many in the IT industry to protest repeatedly; early and often seems to be the mantra,” Novakovic said. “It’s going to make the recognition of that revenue a little bit lumpier.”

GDIT has $34 billion in proposals that are in the source selection phase and expects to submit another $20 billion in bids through the end of this year.

Opportunities at civilian agencies fall under those categories as many within that group of customers were slated to get increases under the Biden administration’s budget blueprint.

“I would imagine as they receive more funding and the ubiquitous-ness of IT infrastructure to all of their missions, I would see that as some additional upside and potential for us,” Novakovic said.

“When that comes will depend on a whole series of issues around timing, but you can (be) rest assured that in that pipeline on a go forward basis that we’re looking at, we’ve got some good civilian work in there.”

On a company-wide basis, GD lifted its sales outlook for this year by $200 million to $39.2 billion with an operating margin of 10.6 percent.

X
This website uses cookies to enhance user experience and to analyze performance and traffic on our website. We also share information about your use of our site with our social media, advertising and analytics partners. Learn More / Do Not Sell My Personal Information
Accept Cookies
X
Cookie Preferences Cookie List

Do Not Sell My Personal Information

When you visit our website, we store cookies on your browser to collect information. The information collected might relate to you, your preferences or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. However, you can choose not to allow certain types of cookies, which may impact your experience of the site and the services we are able to offer. Click on the different category headings to find out more and change our default settings according to your preference. You cannot opt-out of our First Party Strictly Necessary Cookies as they are deployed in order to ensure the proper functioning of our website (such as prompting the cookie banner and remembering your settings, to log into your account, to redirect you when you log out, etc.). For more information about the First and Third Party Cookies used please follow this link.

Allow All Cookies

Manage Consent Preferences

Strictly Necessary Cookies - Always Active

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data, Targeting & Social Media Cookies

Under the California Consumer Privacy Act, you have the right to opt-out of the sale of your personal information to third parties. These cookies collect information for analytics and to personalize your experience with targeted ads. You may exercise your right to opt out of the sale of personal information by using this toggle switch. If you opt out we will not be able to offer you personalised ads and will not hand over your personal information to any third parties. Additionally, you may contact our legal department for further clarification about your rights as a California consumer by using this Exercise My Rights link

If you have enabled privacy controls on your browser (such as a plugin), we have to take that as a valid request to opt-out. Therefore we would not be able to track your activity through the web. This may affect our ability to personalize ads according to your preferences.

Targeting cookies may be set through our site by our advertising partners. They may be used by those companies to build a profile of your interests and show you relevant adverts on other sites. They do not store directly personal information, but are based on uniquely identifying your browser and internet device. If you do not allow these cookies, you will experience less targeted advertising.

Social media cookies are set by a range of social media services that we have added to the site to enable you to share our content with your friends and networks. They are capable of tracking your browser across other sites and building up a profile of your interests. This may impact the content and messages you see on other websites you visit. If you do not allow these cookies you may not be able to use or see these sharing tools.

If you want to opt out of all of our lead reports and lists, please submit a privacy request at our Do Not Sell page.

Save Settings
Cookie Preferences Cookie List

Cookie List

A cookie is a small piece of data (text file) that a website – when visited by a user – asks your browser to store on your device in order to remember information about you, such as your language preference or login information. Those cookies are set by us and called first-party cookies. We also use third-party cookies – which are cookies from a domain different than the domain of the website you are visiting – for our advertising and marketing efforts. More specifically, we use cookies and other tracking technologies for the following purposes:

Strictly Necessary Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Functional Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Performance Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Social Media Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Targeting Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.