(GD) General Dynamics Wins U.S. Air Force Contract

General Dynamics Advanced Information Systems, a unit of General Dynamics Corporation (GD) has been awarded a contract worth $7.8 million to develop an Open System Architecture (“OSA”) common back-end digital processor. Through this contract, the U.S. Air Force intends to include radars, SIGINT sensors, electronic-warfare and communication systems for the entire family of Air Force radio frequency (“RF”) electronic devices.

According to the contract, General Dynamics will provide a single family of processors that will be capable of handling the digital processing needs of all Air Force RF systems.  The company will use open interface standards to develop modular, multi-mission electronic back-end processors that will help in leveraging technologies developed under other OSA initiatives conducted by the Office of Naval Research.

Moreover, back-end processors are used to analyze sensor signals, once they have been converted from analog to digital formats collected by the RF devices. Since the General Dynamics open architecture eliminates the need for proprietary interfaces, Air Force will benefit from competition from multiple vendors and will be able to take advantage of rapid technology upgrades as well as cost savings throughout the lifecycle of the processor.

The job to be performed under the contract is scheduled to be held in Bloomington, Minnesota, Fairfax, Virginia, Waimea, Hawaii and Ypsilanti, Michigan.

General Dynamics was the fourth largest U.S. defense contractor in terms of revenue in fiscal 2010 (after The Boeing Company (BA), Lockheed Martin Corporation (LMT) and Northrop Grumman Corporation (NOC)). The company’s diversification of revenue through exposure to a number of uncorrelated markets will keep the overall growth momentum steady. Additionally, the company continues to benefit from strong congressional support for its programs in the 2011 defense budget appropriations process.

However, the company is largely tied to the U.S. defense budget, where the threat of budget cuts is looming high. Moreover, we have turned slightly cautious about the company’s recent G650 crash and risks related to the execution of key projects. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

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.

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