Northrop Grumman Corporation
) 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
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
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
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
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
) 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
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
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