Tech race spurs U.S. investment in new defense suppliers

• The entrants are feeding a pool of Defense Department suppliers that has for decades consolidated, posing "serious consequences for national security," according to a 2022 review of industrial base competition.
• Some of the standouts are dubbed dual-use, serving both commercial and defense markets.

Among the most discussed are Anduril Industries, Palantir Technologies and SpaceX. Other buzzy players include Applied Intuition, Capella Space, Epirus, Scale AI and Shield AI. Here's a look what they have cooking:

• The Air Force in April selected Anduril and General Atomics to work on robo-wingmen known as collaborative combat aircraft. The two bested defense behemoths Boeing, Lockheed Martin and Northrop Grumman.
• The Army in May awarded Palantir a $480 million deal to expand access to software that streamlines a deluge of battlefield information. The company topped RTX, formerly Raytheon, for a $178 million Tactical Intelligence Targeting Access Node contract, as well.
• SpaceX hoists clandestine payloads and is also building a network of "hundreds of spy satellites under a classified contract with a U.S. intelligence agency," Reuters reported.
• Capella builds and operates synthetic aperture radar satellites that render Earth, even in adverse weather conditions. It now works closely with the intelligence community, and recently automated vessel detection and classification in its images.
• Epirus wrapped delivery of four directed-energy drone zappers earlier this year, satisfying a $66 million deal with the Army. It's also eyeing naval applications, to fend off attacks similar to those being launched by Houthi rebels in Yemen.
• Shield AI's digital pilot has been folded into several types of aircraft, with plans to expand to "every aircraft under the sun." The Coast Guard tapped the company this month for a drone-surveillance contract worth up to $198 million.

This revolution is driven by software and private-sector aptitude to build equipment before the military knows it even needs it.

• "The long and the short of it is: Behaviors are changing," Jason Brown, Applied Intuition Defense's general manager, told Axios. "There's no comparison between what existed before 1995, let's say, and today."
• "Software and data are now, really, the weapons that matter most," he said. "A lot of people don't consider them weapons, but I think that's shortsighted."

By the numbers: Over the past three decades the Pentagon's contracting Rolodex shrank from 51 to five in aerospace and defense primes, or companies that maintain long-term and high-dollar relationships with the government.

• Tactical missile suppliers dropped from 13 to three, fixed-wing aircraft suppliers declined from eight to three and satellite suppliers halved from eight to four, according to the 2022 assessment.
• And large, established defense contractors still play a pivotal role in some of the most complex projects: aircraft carriers, stealth aircraft, tanks.

Such massive undertakings "are not going away," according to Mike Brown, the former head of the Defense Innovation Unit now with Shield Capital. But competition is good, and can drive down prices.

• "I would hope you'd see the existing defense primes continuing to do well — we need their capability — but also for the Pentagon to have chosen a number of these new players," he told me.
• "We need to diversify the mix of what we buy, which means we need more small drones, more data from commercial satellites, more AI software."

The intrigue: A question remains: Can the Defense Department learn to embrace this cutting-edge tech at a faster clip?

• "We need to be as innovative, or more innovative, in how we execute the acquisition process as we are in the technology," Gen. James Rainey, the head of Army Futures Command, said at a conference hosted by Scale AI.
• "I don't, personally, think we have a technology problem. I think we have a tech-adoption problem."