General Dynamics still needs chips for its controls

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Yes: A bid to help ease the global shortage of computer chips is underway after both houses of Congress passed legislation on Wednesday to allocate $52 billion in government funding for semiconductor manufacturing. But the so-called CHIPS Act will take some time to work across the whole ecosystem and companies still have to deal with today’s issues.

During General Dynamics’ second-quarter earnings conference call with investors on Wednesday, Chief Financial Officer Jason Aiken said the company’s hardware business “continues to struggle with a shortage of chips, which continues to affect their ability to supply certain products”.

General Dynamics is far from the only government technology company to cite chip shortages as a drag on its financial and operational performance, as we noted earlier.

But the company specifically said there weren’t enough semiconductors to make the rounds of its two earnings calls in January and April, plus a majority of them in 2021.

In the third quarter, revenue of $3 billion from General Dynamics’ Technologies segment, which includes both IT services and mission systems hardware businesses, was down 5% year-over-year. other, with two-thirds of that decline solely attributed to MS and the chip shortage. .

GD updated its full-year outlook for Technologies to $12.9 billion in revenue, just in the middle of the initial range, and stuck to the operating margin forecast. by 10%.

After shelving the IT services unit, Mission Systems is the shortest-cycle product business GD has given to this division to focus on communications and cybersecurity hardware, primarily for defense programs and spatial.

“These are high-tech, high-end design products,” Aiken told analysts. “The specifications are quite precise.”

GDMS team members may be trying to order chips and other parts ahead of time, but Aiken acknowledged that it’s “difficult to get [their] place online.”

“It’s an issue that not only affects the industry, but the broader economy, but they’re doing their best on that front,” Aiken said. “They’re also working to change designs, modify designs, accept alternate parts where they can, and be as nimble as possible on that front, but obviously that takes time.”

So customer order activity for many of these products requiring said chips continues to be active, Aiken added. The Technologies segment’s backlog was $13.5 billion at the end of the second quarter, of which $9.4 billion was funded.

“For this side of the business, it’s just a timing issue that we’ve seen here,” Aiken said. “If you take, for example, the second quarter and the product couldn’t be shipped at the end of the quarter, we saw the vast majority of those shipped in the first month of the third quarter.

“So that’s flowing through. That doesn’t mean we’re out of the woods yet. I think that’s going to be something that’s going to bother us for the rest of the year and maybe spill over into the year a bit. next. “

Readers of old may have noticed that CEO Phebe Novakovic was not featured in this article. Aiken said she had recently contracted COVID and was “on the mend and doing well,” but asked her to cover the call anyway.

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