Military Embedded Systems

A world perspective: How the triple whammy affects it all


September 24, 2009

A world perspective: How the triple whammy affects it all

Having recently announced the dissolution of joint venture of GE and Fanuc, the soon-to-be-renamed GE Intelligent Platforms is not unlike the defense industry itself - rife with change and evolution. Thus, in our exclusive interview, Peter Cavill, General Manager Military & Aerospace at GE tells us about the triple whammy of worldwide changes and challenges that, he says, make predicting the future of defense spending a job for the brave or the foolish. Edited excerpts follow.

Having recently announced the dissolution of joint venture of GE and Fanuc, the soon-to-be-renamed GE Intelligent Platforms is not unlike the defense industry itself - rife with change and evolution. Thus, in our exclusive interview, Peter Cavill, General Manager Military & Aerospace at GE tells us about the triple whammy of worldwide changes and challenges that, he says, make predicting the future of defense spending a job for the brave or the foolish: a change in U.S. political leadership, a worldwide recession, and turmoil in Iraq and Afghanistan. Edited excerpts follow.

MIL EMBEDDED: Do you think we’ll see more mergers and acquisitions in the current climate?

CAVILL: I don’t foresee any major acquisitions occurring in the near future in the mil/aero embedded computing sector, mainly because with a few notable exceptions – for example, Mercury – there aren’t many large independent players left. I guess you might see Emerson or Kontron – both of which are (as is typical when the telecom and industrial markets are down) looking to expand in mil/aero – looking at acquiring some of the smaller niche companies in order to boost their own military credentials.

However, a number of companies out there are looking seriously undervalued and might make a very cost-effective acquisition. There are also a few companies that are really struggling and would probably be open to an approach. On the other hand, purse strings are tight – and beyond that, I’m really not sure that there’s room for much more consolidation in the defense industry. Or, at least, nothing particularly earth-shattering.

MIL EMBEDDED: What about GE Fanuc – sights set on any potential acquisitions at the moment?

CAVILL: From our point of view, we’re very comfortable where we are. GE Fanuc Intelligent Platforms has, as you know, grown to be one of the market’s most significant players through a series of acquisitions. A number of conscious decisions have been made to acquire capabilities that allow us to become more of a one-stop-shop, more able to add value for our customers by being able to integrate more parts of the solution. Those acquisitions have enabled us to enrich our basic “products” business – a business that’s still very important to us – with more of a “solutions” capability.

MIL EMBEDDED: What did you make of Intel’s acquisition of Wind River Systems?

CAVILL: Intel’s acquisition of Wind River Systems was an interesting one. It seemed to us to be further compelling evidence of Intel’s commitment to the embedded space. There was speculation around the announcement that the acquisition was all about Intel’s plans for Linux, Android, and the cell phone market, but it’s interesting to speculate whether there might be more.

Even Intel would probably not disagree that, historically, their position on embedded computing was an equivocal one. But in recent years, we’ve been reassured by what Intel has done within its business. The most important thing in the military embedded business is the longevity of many programs and the implications thereof for long-term support of components. That’s very different from the commercial marketplace, where product longevity is less prized than product leadership, and product life cycles are typically shorter. Intel has made important changes to reflect the different priorities of the embedded market. And what we’re now seeing is that customers in the embedded space have a real choice, with both Intel and Freescale bringing very attractive products to market that all deliver different strengths. Our strategy is to continue to reflect that choice in the platforms we deliver for customers.

MIL EMBEDDED: Boeing has entered the UAV market. What does that tell you?

CAVILL: When a major name enters a market, that has to tell you something about the attractiveness of that market. It’s widely agreed that the market for UAVs is a multibillion dollar one, whereas only three or four years ago it was measured in the low hundreds of millions. It’s hardly surprising that a company like Boeing, with its extensive experience and expertise, would have been evaluating the opportunity very closely.

Certainly, Boeing’s interest matches our own experience in terms of what a vibrant market the unmanned vehicle market is. As with so many markets, it’s difficult to determine whether it’s the application that’s driving the technology, or the technology that’s making the application possible. Look at 3U VPX, for example. It offers outstanding processing performance and an architecture that lends itself readily to communications-centric environments. Plus it’s small, lightweight, and easily managed from a heat/power perspective. We can do things with 3U VPX that we could only dream of with 3U VME and 3U CompactPCI. Along with advances in D/A and A/D conversion and in video, it’s enabling unmanned vehicles to be far more autonomous than before, more capable of self-determination as a mission develops.

MIL EMBEDDED: What’s your reading of how defense budgets are going to pan out?

CAVILL: It’s still not clear to us how the whole budget scenario will shake out. There are just too many variables to enable anything better than a guesstimate. First, you have the change in political leadership in the United States – a new president with new ideas, new approaches, new priorities. That in itself, under normal circumstances, would make the future difficult to predict. But we find ourselves in abnormal circumstances. The worldwide recession has changed everything. Even if we had political continuity, priorities in terms of spending would almost certainly have changed. But now, we have what you might call a double whammy. Add to that the uncertainty about how the change of situation in Iraq will alter things or how things will play out in Afghanistan and you’re probably looking at a triple whammy. It’s a brave – or foolish – pundit who will claim to predict what the future of defense spending will be.

And while other countries around the world aren’t – at least on the surface – impacted by the political dislocation in the United States (with the transition from Republican to Democrat, from Bush to Obama), there is an impact just because the United States is by far the biggest defense spender. When U.S. defense sneezes, the rest of the world catches a cold. And, of course, other countries are no less impacted by the changing priorities brought on by a recession and by the uncertain outcome of places like Afghanistan, which involves many of the world’s forces. From our point of view, we’re happy with how the business is looking. We could wish for more growth, but the things we forecasted to happen are happening. In fact, if we look around, the defense business is probably doing better than many others. Of course, there are some programs, most notably FCS, that are being curtailed or foreshortened or consolidated. We expect some, possibly most, of the funding earmarked for these programs to be diverted elsewhere – most likely into increasing ISR capabilities overall and, in particular, in upgrading existing ground vehicles like Abrams, Stryker, and Bradley.

MIL EMBEDDED: How is the market in Europe? We hear a great deal about BAE and Eurofighter, for example.

CAVILL: Markets outside the U.S. are mixed – but the news is mostly positive. What we’re seeing in Europe is that investment is continuing in existing programs, but future programs are somewhat subject to moving to the right. We haven’t, for example, seen the kind of major cancellations like FCS – a cancellation that, fortunately, hasn’t affected the parts of FCS that we’re designed in to, such as NLOS with its projected 900+ systems. On the other hand, we’re seeing some delays, some program restructuring. The Eurofighter Typhoon, for example – Europe’s biggest program, with 620 aircraft planned for Europe alone – is currently approaching Tranche 3, but the decision has been to divide that tranche into two, with the second half being delayed. Having said that, with Tranche 3A, 586 aircraft have been ordered and current production will continue for many years. Tranche 3B may well still happen, too.

Concerning BAE and GE Fanuc, we both have a substantial presence in Europe, but the majority of our business comes from North America, which makes both of us susceptible to changes in the U.S. market. However, they’ve been somewhat impacted by delays in the UK Army’s Future Rapid Effects System (FRES) program, with a restructuring that has seen the utility vehicle de-emphasized with focus switched to the scout vehicle. Much like in North America, there’s also significant activity going on with UAVs. BAE’s HERTI and Taranis are two prime examples. We’ve also seen delays in the Airbus A400M turboprop transporter aircraft program. It’s now running around four years late, but the issues there are technical rather than financial. That’s another program we’re designed in to – but via an American supplier! Yet another program in which we’re present is the Puma tank: The good news is that the German government has just signed an order for 405 vehicles.

MIL EMBEDDED: Clearly, a lot of shifts for Europe. What about other world regions?

CAVILL: Outside of Europe, India is seeing a lot of activity as it becomes more self-sufficient and creates its own defense equipment infrastructure. Budgets are actually rising there. The big program there is the Tejas fighter aircraft, for which we’re supplying the mission computer.

Besides that, an interesting phenomenon we’re seeing in Asia Pacific is that programs are far less conservative than in North America, with much more willingness to embrace new technologies. The opportunities there are relatively smaller than in the rest of the world – but they’re very exciting.

Peter Cavill is General Manager Military & Aerospace at GE Fanuc Intelligent Platforms. He graduated in Electrical Engineering, then earned a Masters degree in Microelectronics and Semiconductor Technology. He has worked at GEC Semiconductors, Fairchild, Inmos, and Anamartic. He joined Radstone Technology in 1995 and was Managing Director of its embedded computing business until its acquisition by GE Fanuc in 2006. He can be contacted at [email protected]

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