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This Profit Play Builds "Hunter" Drones To Counter the Chinese Sub Threat

I'll never forget my conversation with defense-industry leader Bob Beyster.

Armed with a doctorate degree and decades of experience, Beyster ranked as one of the U.S. defense industry's true visionary thinkers. That came through loud and clear when I interviewed him for Signal magazine back in early 1999.

Beyster could talk with ease about everything from the impact of the dot-com boom of the 1990s to the future of information technology at the Pentagon.

This University of Michigan-educated scientist was a walking, talking encyclopedia of global tech trends. He gave me loads of insight into the major shifts that would reshape our world far beyond defense – from changes in telecommunications to how the Web would slash business costs for thousands of global firms.

With fond memories of that chat, I have been a faithful follower of the groundbreaking company Beyster founded some 35 years ago.

I'm referring to Science Applications International Corp. (NYSE: SAI), now headquartered in McLean, VA.

That's why I was glad to learn recently that SAIC is taking a leadership role in a major defense trend – unmanned vehicles, usually referred to as drones. SAIC is helping the Pentagon pioneer underwater drones that can detect a new generation of ultra-quiet diesel-electric submarines that threaten U.S. security.

In a moment I will share those details with you.

But first, I want to make sure you know why I spend time talking to senior leaders like Beyster. See, these guys are not only big thinkers driving the Era of Radical Change, but many of them are also profit machines.

They often define U.S. entrepreneurship – the unique quality that makes America the perennial leader in global high tech … and in the creation of wealth for its free-market investors.

An entrepreneur himself, Beyster is known for taking two bold management steps.

First, he laid the groundwork for employee ownership of a publicly traded firm. That may sound like an inherent contradiction. But not the way Beyster did it.

At the time I talked with him, only the employees could own stock in SAIC. Beyster stands out today as a leader in pushing the concept of employee-owned firms. After he retired as CEO, the company launched an IPO, and its shares are publicly traded still. (In fact, to better focus on a changing market, SAIC later this year plans to split into two publicly traded firms.)

Second, Beyster became the ultimate change agent. He created an atmosphere that catered to entrepreneurs – which turned SAIC into an incubator for innovation. Indeed, many of Beyster's "employees" went off to start their own firms.

Between 1975 and 2003 – the 18-year stretch for which Beyster kept records – roughly four dozen alumni started new companies.

No doubt, most never became household names. You likely never heard of Michael A. Chipman. Fact is, he created a little software package called TurboTax.

Shortly after going public in 1993, Intuit Inc. (NasdaqGS: INTU) acquired that firm – and has gone on to return roughly 2,600% to investors.

In 2004, Beyster retired from the company he'd founded back in 1969, at the height of the Vietnam War. But his focus on making sure that SAIC would remain a technical leader lives on today.

That's clear from the recent news that the mid-cap firm just got a key "drone" contract with DARPA, the Pentagon's research unit.

These days, most drones are airborne, and are known as "unmanned aerial vehicles," or UAVs. They represent a major trend toward pilotless military planes.

But under a contract worth at least $58 million, SAIC will build and test an unmanned underwater vehicle (UUV) with a very special purpose.

Simply put, DARPA wants a robotic anti-submarine vehicle – a "sub-hunter" drone that can operate for extended periods, and cover thousands of miles of ocean as it does so.

You see, China, North Korea and Iran between them now have 73 diesel-electric "boats," as they're known in military parlance. About half are the new, super-quiet subs.

And more are on the way.

In an era in which ultra-modern nuclear subs get all the headlines, here's a stunner: Diesel-electric technology – which dates back to the late 1920s – is one of the biggest sources of worry in the Pentagon's shadowy corridors.

And for good reason. The propulsion systems of these boats are nearly silent. Diesel-electrics run on big diesel motors when running on the surface, but switch to batteries when submerged.

That power system is nearly silent, making it the perfect design for the shallow waters just off our coastlines.

These submarines also possess the "passive" sonar systems that make it possible for these submarines to sit and listen, submerged and quiet, just off our shores.

It's a nasty package, and one that can't be ignored: We don't want the silent subs of our enemies to be able to launch a first strike on the U.S. from as little as a mile away.

I believe this technology is vital, and the sooner we field these drones, known as ACTUVs, the better. It will give us an edge over China – we'll be able to find their quiet subs long before they can find ours, shifting the balance of power back to the United States.

There's a fitting synchronicity to this DARPA award, for it means that SAIC has come full circle: Beyster served as a naval officer during World War II and later did scientific research that helped develop our nuclear subs.

America is much better off today because of Beyster's contributions and long service. And the looming two-way split-up of the company he founded will undoubtedly touch off an entirely new cycle of wealth-creation.

We'll keep you posted. After all, that's precisely the kind of opportunity we look for … here in the Era of Radical Change.

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About the Author

Michael A. Robinson is one of the top financial analysts working today. His book "Overdrawn: The Bailout of American Savings" was a prescient look at the anatomy of the nation's S&L crisis, long before the word "bailout" became part of our daily lexicon. He's a Pulitzer Prize-nominated writer and reporter, lauded by the Columbia Journalism Review for his aggressive style. His 30-year track record as a leading tech analyst has garnered him rave reviews, too. Today he is the editor of the monthly tech investing newsletter Nova-X Report as well as Radical Technology Profits, where he covers truly radical technologies – ones that have the power to sweep across the globe and change the very fabric of our lives – and profit opportunities they give rise to. He also explores "what's next" in the tech investing world at Strategic Tech Investor.

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  1. Charles | January 14, 2013

    This security does not come up under the symbol SAIC. I found a symbol SAI that indicates a company SAIC, which is a technical services company that appears to be the one you're referring to. I am acting on that assumption. Please publish a correction if this is not accurate.

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