General Dynamics sees chip supply issue continuing into next year

Sizing up the global computer chip shortage’s impact on the overall government technology landscape can get tough when considering the unique cadence of how said ecosystem works, plus the variety of chips that are in existence.

But during General Dynamics’ third quarter earnings call Wednesday, CEO Phebe Novakovic told investors the company’s IT hardware business continues to feel the semiconductor supply pinch that she referenced as a headwind back in the summer.

General Dynamics Mission Systems will continue to have to work through those issues into next year, Novakovic added. The GDMS business makes communications and cyber products for predominantly defense and space customers, which indicates they rely on at least some of the same sources for chips as others.

Revenue for GDMS declined 13 percent from the prior year period to $1.06 billion, according to GD's third quarter regulatory filing. But Novakovic said “they have begun to successfully mitigate some of those chip impacts” at Mission Systems even while believing the issues will continue.

Third quarter revenue in GD’s Technologies segment, which comprises Mission Systems and the IT services segment, fell 4 percent from the prior year period to $3.1 billion. Operating earnings for the overall Technologies segment rose 4.1 percent to $327 million.

GD now sees the segment’s sales to hit $12.6 billion for this year, which is $400 million less than the prior forecast but owing to what is going on at Mission Systems.

Sales in the GDIT services business climbed 1.4 percent year-over-year to $2.06 billion, according to the quarterly regulatory filing.

Total backlog in Technologies held steady at $13.7 billion, which is where it stood at the end of the prior two quarters also.

Novakovic said the overall Technologies segment book-to-bill ratio for the quarter was 1.1, a measurement of contracts being added to the backlog versus drawdowns to book sales. GDIT’s ratio was “a little better than 1-to-1,” while Mission Systems was “somewhat less” than that.

What lies ahead in GD’s broad technology opportunity landscape? One area seems top of mind for Novakovic, according to her opening script.

“Cybersecurity is a top priority throughout the government and the budget calls for tens of billions of dollars in unclassified spending in both the defense and civil spaces. This is a significant opportunity, for which we are well-positioned to support our customers' needs, particularly as more and more customers move toward a zero trust model,” she said.