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Interview with Mark Aslett, Mercury Systems president and CEO

President & CEO, Mercury Systems

Jun. 7, 2013 - 10:45AM   |  
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CEO Mark Aslett
CEO Mark Aslett (Mercury Systems)
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With an increased emphasis on ISR, the Pentagon is collecting massive amounts of data every day — data that needs to be processed and handled to provide actionable intelligence. The Massachusetts-based Mercury Systems provides high-tech sensors and data processing systems for some of the largest Pentagon programs, including the F-35 and Predator. CEO Mark Aslett talked with Defense News about the pivot to Asia, the impact of sequestration and F-16 radar upgrades.

Q. How has Mercury Systems positioned itself to take advantage of the current market?

A. Our former CEO had gone through a period of diversification, which led to an unwinding of the financial performance. When I came in 2007, I recognized that the defense electronics business is the core of the company, so we focused on that. That’s led to a significant growth in terms of revenues and profits from the defense space.

In terms of what we do, we’re a tech company at heart. We’re investing significantly in terms of R&D [research and development]. We’re applying those dollars to produce high-performance sensor-processing subsystems for defense applications and big data processing for the intelligence community. We build these very sophisticated computers that go onboard military platforms. Most of our work is directly with the defense prime contractors, so we’re mostly a subcontractor. We typically don’t contract directly with the government other than with the Mercury Intelligence System business.

Q. What platforms are you on?

A. We are on many platforms, including [the] F-16, F-22, F-35 [fighter jets] and UAVs like Predator and Reaper. In total, we’ve worked on about 300 different programs with pretty much all of the major prime contractors.

The business has gone through a significant transformation, largely as a result of acquisitions of other companies. Historically, Mercury provided one element on the sensor processing chain: very high-performance computing. Over the last few years, we’ve done acquisitions that transformed the capability, so we’re now the only commercial company that provides end-to-end capabilities.

Q. How do you shorten the time between gathering intelligence and making it useful?

A. The services are pushing more and more high-performance computing onboard the platform to process the massive amount of data that is being generated. I heard a very good description recently from [former US Air Force Lt. Gen.] Dave Deptula, former deputy chief of staff for ISR, that said right now, USAF is “swimming in sensors and drowning in data.” There’s just an amazing amount of raw data being generated that needs to be transformed into information, and that information needs to be turned into actionable intelligence. We’re right at the heart of that data-intelligence-information process.

Q. What is a good example?

A. Look at Global Hawk. It’s a high-altitude ISR [UAV] that can stay up in the air well north of 24 hours and collect a huge amount of data. In the past, that platform worked by going out on a mission, landing, downloading the data, having it processed, and then a week later, the intelligence is sent back over into the theater. We’re involved in Gorgon Stare, the USAF program to provide wide-scale ISR. We’re short-circuiting that whole process, providing the very high-performance computing and writing the algorithms that give the war fighter immediate actionable intelligence. We’re basically translating or shortening the timeframe from weeks to minutes.

Q. Can increasing the use of onboard processing drive down cost?

A. You can go from having many different analysts reviewing the raw data to the system itself just providing the actionable intelligence. So you can dramatically reduce the number of people who need to be deployed to work on the UAVs. It also lengthens the time an unmanned system can be on wing. If you look at the onboard processing, one of the biggest drains from a power perspective is the communications system being used to move vast quantities of data being collected. When you start to move to onboard communication, it results in longer persistence with the platforms themselves that are being used to gather the intelligence itself. Onboard exploitation actually helps with the systems.

Q. How are you positioning Mercury to survive in the new defense reality?

A. Look at what’s happening at a very high level. As a nation, we’re now in the midst of what is an upgrade cycle. We shifted from major new weapon platform developments into upgrading the existing systems and platforms we have today, largely because it’s much more cost-effective than developing a brand-new platform itself. Those upgrades are largely focused on increasing the number and sophistication of the sensors, which requires more of what we do: providing the high-performance computing. So we’re involved in that.

Q. What impact are you seeing as a supplier to larger companies?

A. Because we sell to the primes, what we saw was a slowdown in many of our programs as the primes were preparing for the potential of sequestration. We had a tough first half, but the business appears to have stabilized, ... given some of the program awards we anticipate over the next six to nine months. We’re actually in a pretty good position to get back into a growth mode. But clearly, we saw the impact.

Q. Are those cuts forcing a culture change in the defense industry?

A. As a company, the largest growth driver we see is that the defense prime contractors are outsourcing more and more work. It’s probably one of the biggest trends we see in the industry. Much of that is being driven by cuts to the defense budget, and the fact they need access to technologies and abilities more quickly.

So if you look at the big programs we’re involved with, much of that work used to be done by in-house engineering teams. Now, the primes are outsourcing that more and more to commercial companies like Mercury, which has leading technology and an inherent cost advantage. So we can help the primes deliver their programs and platforms on schedule and on budget. That’s an area we think will have a significant growth impact on the business.

Q. When did that trend start?

A. It’s something that we spotted about five years ago, but with the recent slowdown in the budget in terms of overall defense spending and as a direct result of defense procurement reform, we’re seeing that pace accelerate. It’s only going to continue over the next five to 10 years as the industry looks to reformat. We believe we’re very well positioned, because the defense prime contractors, when they are outsourcing, are doing so at a much higher level than they did in the past.

Q. How has your company planned for the pivot to Asia?

A. If you look at what’s happening, as a nation we’re going to start investing in more capabilities to counteract the much more sophisticated technology you see coming out of the Asia-Pacific region. So, missile defense is critically important, as is [electronic warfare] and radar upgrades, which we’re involved with, particularly with AESA [active, electronically scanned array] radars for F-16s. In this particular case, we’re anticipating that Northrop [Grumman], our customer, will be competing to not only upgrade the USAF F-16, but also countries like Taiwan and Singapore that are looking to upgrade a significant portion of their F-16s. So I think the programs and the platforms we’ve won play very, very well, not just in the wars we’ve been fighting over the past decade, but increasingly looking forward to future conflicts we may be involved with in Asia.

Q. How much of your business is based on the Defense Department?

A. Ninety percent of our revenues today come from defense. Eighty-five percent of our defense revenues are classified as national sales, with 15 percent for foreign military sales or direct international sales. We anticipate the foreign military sales part of the business will continue to grow, particularly if the government is seeking to gain a return on the technologies it has helped fund by shipping some to foreign allies. So that will probably be double digits within the next five years. Much of that goes to R&D; we are actually investing 20 percent of revenues on advanced research and technology.

Q. How do you balance working on new systems and working on upgrades?

A. We play when the primes are looking for advanced technology for brand new weapons systems, but given that there will probably be fewer and fewer of them around, we also play extremely well in the upgrade cycle, because the most cost-effective way to provide cost-effective abilities is through upgrades to existing systems, primarily with sensors. There are 2,500 F-16 fighters around the world that, over time, are going to migrate towards these new types of radars, and our processing solution is an integral part of this system. You’ve got Saudi Arabia, Kuwait, Singapore, Taiwan; all of them are looking at next-gen upgrades to fighter platforms.

-- By Aaron Mehta in Washington.

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