NOC Wins Cloud Computing Contract - Analyst Blog

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Northrop Grumman Corporation ( NOC ) has received a fixed facility task order from the U.S. Army as part of an Army Private Cloud Computing ("APC2") program. The total deal was valued at $249.8 million, including the customary one-year base period and four one-year extension options.

Government departments usually award deals under Indefinite Delivery/Indefinite Quantity ("IDIQ") contracts when demand for the products are of an ongoing nature. Therefore, the APC2 award to Northrop was also made under an IDIQ contract.

Similar to private companies, government departments are also attempting to leverage the cost benefits of transferring their operations to the cloud. For this purpose, they have largely depended on private clouds that are generally more secure than public ones.

Although Northrop is developing "hybrid" solutions that could make use of the benefits of both private and public clouds, this particular award was made for the government's private cloud initiative. It is intended to support the cloud computing requirements of the Department of Defense ("DoD"), the Army and federal agencies.

The U.S. Army has rated APC2 as its preferred tool for collecting, processing and storing information for warfighters. Through this cloud computing program, the Army plans to lower application migration, hosting, administration and maintenance costs. 

Per the contract, Northrop will support the U.S. Army Program Executive Office Enterprise Information Systems. The contract terms also require the company to provide army warfighters with global access to information, cloud computing consulting services, cloud operations and maintenance services in a more secure environment.

Despite U.S. defense budget cutbacks, the establishment is still continuing its ongoing contracts under the APC2 program. On April 2, 2012, Northrop's close peer General Dynamics Corporation ( GD ) received two contracts from the U.S. Army to develop and implement fixed and mobile computing capacity for the Area Processing Centers under the APC2 program.

Northrop Grumman Corporation is a leading global security company providing innovative systems, products and solutions that have application in aerospace, electronics and information systems. It also provides technical services to government and commercial customers worldwide.

We believe that the company is well positioned with a strong presence in the areas of cyber security, defense modernization and homeland security systems, intelligence, surveillance and reconnaissance systems, sophisticated electronics and software development. This expertise will come in handy in the current environment, given the focus of recent defense budgets. We expect this to translate to additional revenue and earnings growth for Northrop and its peers.

At the same time, we think that the company's over-dependence on the budget, the prevailing Euro-zone crisis, lower backlogs, cost overruns and reductions in Afghanistan and Iraq military deployments are reasons for concern. As a result, Northrop currently has a Zacks #4 Rank, which translates into a short-term Sell rating.


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



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Referenced Stocks: GD , NOC

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