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General Dynamics still needs chips for its orders

Yes: an attempt to help alleviate the global computer chip shortage is on the way 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 time to work across the ecosystem and companies still have to deal with the problems now.

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

General Dynamics is far from the only government technology company to cite the chip shortage as a drag on its financial and operational performance, as we’ve previously reported .

But the company specifically called for not having enough semiconductors to go around in its same earnings calls in January and April, plus most of them in 2021.

Third-quarter revenue of $3 billion at General Dynamics’ Technologies segment, which includes the IT services and Mission Systems hardware businesses, was 5% lower year-over-year with two-thirds of that reduction is only due to MS and the lack of chip. .

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

After setting aside the IT services unit, Mission Systems is the shortest cycle product business provided by GD in that division’s focus on communications and cybersecurity hardware mostly for defense and space programs.

“These are highly engineered, high-end design engineering type products,” Aiken told analysts. “The details are pretty specific.”

GDMS team members may be out there trying to order chips and other parts before they are needed, but Aiken acknowledges that they are “hard to come by. [their] place in the line.”

“It’s an issue that affects not only the industry, but the broader economy, but they’re doing the best they can on that front,” Aiken said. “They’re also working on revising designs, revising designs, accepting alternative parts where they can and being as agile as they can on the front, but that’s obviously going to take some time.”

The catch is that customer order activity for most of the products that require said chips continues to be active, Aiken added. Technologies segment backlog stood at $13.5 billion at the end of the second quarter with $9.4 billion in funding.

“For that part of the business, it’s just a timing issue that we’re seeing here,” Aiken said. “If you take, for example, the second quarter and the product doesn’t ship at the end of the quarter, we see the majority actually shipped in the first month of the third quarter.

“So that’s flowing. It doesn’t mean we’re out of the woods. I think it’s something that will hurt us for the balance of the year and maybe lose a little bit next year.”

Past readers may have noticed by now that CEO Phebe Novakovic did not appear in this article. Aiken said he recently came down with COVID and is “on the mend and doing well,” but he was still asked to cover the call.

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