Bloomberg Defense Tech Special

>> "BLOOMBERG TECH" IS LIVE FROM THE HEART OF SILICON VALLEY WITH AND IN SAN FRANCISCO. ED: WELCOME TO A SPECIAL EDITION OF "BLOOMBERG TECH," LIVE FROM SKUNK WORKS, LOCKHEED MARTIN'S ADVANCED AIRCRAFT DEVELOPED A IN SOUTHERN CALIFORNIA. TODAY, WE DISCUSSED WITH SOME OF THE BIGGEST NAMES IN THIS BOOMING INDUSTRY FROM THE CONFLICT IN IRAN AND COMPETITION WITH CHINA TO WORKING WITH THE U.S. GOVERNMENT. AI'S ROLE IN THE FUTURE OF WARFARE. WE START WITH ONE OF THE MOST PROFOUND CHANGES FOR THE DEFENSE TECH INDUSTRY, HOW IT'S DOING BUSINESS WITH THE PENTAGON. IT USED TO BE DEFENSE COMPANIES COMPETED WITH CONTRACTS BASED ON REQUIREMENTS SET BY THE GOVERNMENT. NOW, LOCKHEED MARTIN'S CEO WANTS TO PITCH THAT TECHNOLOGY BEFORE THE U.S. GOVERNMENT COMES ASKING. I SAT DOWN WITH HIM TO DISCUSS THAT AND MUCH MORE. >> TYPICALLY, THE U.S. GOVERNMENT WOULD SET REQUIREMENTS, THE ARMED SERVICES WOULD SET REQUIREMENTS AND SAY, I WANT A NEW PLANE THAT GOES THIS SPEED AT THIS ALTITUDE, CAN CARRY THIS MUCH EQUIPMENT AND WEAPONS, WHATEVER, AND HERE IS A 500 PAGE SET OF REQUIREMENTS THAT WE HAVE A DIVIDE THAT WE WANT YOU TO DESIGNED TO. TWO OR THREE OF US WOULD GET REQUESTS FOR INFORMATION. CAN YOU DO THIS? WHAT ARE THESE REQUIREMENTS GOING TO TAKE TO CREATE, WHAT TO GOING TO COST. THEN THERE WOULD BE A BUNCH OF INPUT BACK FROM INDUSTRY AND THAT A REQUEST FOR PROPOSAL. WHO WANT TO STEP UP AND TRY TO DO THIS, EXTREMELY WELL DEFINED REQUIREMENTS AT? AND THEN THERE WOULD BE TWO OR THREE BIDDERS, SELECTED TO ONE, USUALLY THE LOWEST COST PROVIDER THAT WAS TECHNICALLY QUALIFIED WOULD GET THE JOB. THEN IT WOULD TAKE YEARS TO ACTUALLY CREATE THAT CAPABILITY. WHAT IS DIFFERENT NOW IS THAT THE CURRENT LEADERSHIP IN THE PENTAGON HAS DECIDED TO TAKE THE STRAITJACKET OF THE COMPANIES WHICH ALLOWS US TO TAKE THE STRAITJACKETS OFF OF OUR ENGINEERS AND SCIENTISTS TO ALLOW US TO BE FLEXIBLE, TO PROPOSE SOLUTIONS, DO PROTOTYPES. WE GO OUT IN THE FIELD AND THE FIELD COULD BE THE PACIFIC OCEAN FOR US, AND WE TEST PROTOTYPES ON ACTUAL SHIPS WITH SAILORS THAT ARE STATIONED ON THE SHIPS RUNNING THE PROTOTYPES TO SEE IF IT WORKS. THEN WE WILL COME BACK WITH THAT, OR ARMY TEST RANGE. WE ACTUALLY SHOT SOME OF OUR MISSILES OUT OF OUR LAUNCHER, SHOWED THE ARMY, HAD THEIR PEOPLE OPERATE IT. IT WORKED. WE HAVE THIS INTEGRATION CAPABILITY NOW. THE STRAITJACKET IS OFF THE COMPANIES AND THE INDUSTRY. WE WELCOME THE NEW ENTRANTS, THE STARTUPS. WE WANT THAT CREATIVITY, SO WE CAN LEARN FROM IT. IF SOMEBODY CAN DO FORTEM AT A BETTER SIZE AND SHAPE AND COST THAT WE CAN, WE WANT TO BRING THAT AND QUICKLY. WE WELCOME THOSE INVESTORS, WE WELCOME THAT TALENT, WE WELCOME THAT TECHNOLOGY. WE WANT TO INTEGRATE IT INTO OUR MISSION SETS. WE CAN BE THE SUBCONTRACTOR, TOO, IF SOMEONE HAS A BETTER MISSION SOLUTION THAT WE DO, WE WOULD LOVE TO PUT THE F-35 INTO THAT PROFILE. SO THIS CAN GO BOTH WAYS ACTUALLY. ED: ONE IS LOCKHEED MARTIN'S STRATEGY? HOW CORE IS AI TO THAT TECHNOLOGY ROADMAP? JIM: VERY FUNDAMENTAL TO THE COMPANY AND EVERYTHING WE ARE DOING. OUR CHIEF ENGINEER, WHEN I STARTED AT THE COMPANY IN MANAGEMENT SIX YEARS AGO, SAID AI IS REALLY CRITICAL, AS TO INVEST IN OUR OWN AI, CONTAINER IZED CONTAINER WHERE WE ARE NOT GOING TO BE USING MODELS AND THEN FEEDING OUR INFORMATION BACK INTO THE SYSTEM. WE WOULD HAVE A CONTROLLED ENVIRONMENT FOR OUR AI WORKLOADS. ONE OF OUR PARTNERS IN THE TECHNOLOGY SPACE HAS BEEN JENSEN HUANG. BACK IN 2000, 2001, BEFORE ANYONE HAD HEARD OF NVIDIA IF YOU WERE NOT A GAMER, WE WERE TEAMING UP WITH THEM TO GET GPUS. THAT RELATIONSHIP CONTINUES TODAY. WE HAVE OUR OWN GPUS, OUR OWN PLATFORMS, WE HOST AI MODELS ON OUR OWN PLATFORMS AND OUR OWN GPUS. WE USE ONLY DATA THAT WE GENERATED OR GET FROM THE U.S. GOVERNMENT, AND THAT WE CAN CREATE AI DRIVEN SOLUTIONS TO MANY OF THOSE MISSION SETS WE TALKED ABOUT EARLIER. ED: THAT WAS MY A CONVERSATION WITH LOCKHEED MARTIN CEO JIM TAICLET. YOU CAN FIND THE FULL VIDEO ONLINE, BLOOMBERG.COM AND ON YOUTUBE. FOR MORE THAN 80 YEARS, LOCKHEED MARTIN SKUNK WORKS HAS HELPED TO DIVIDE THE CUTTING EDGE OF AMERICAN AIRPOWER. WE ARE LIVE FROM THE STORAGE OPERATION WITH ITS FORMER LEADER OJ SANCHEZ, WHO NOW RUNS THEIR $30 BILLION PLUS AERONAUTICS BUSINESS. WE SHOULD START WITH SKUNK WORKS. YOU LEAD THIS TEAM, THIS CULTURE , THIS PLACE FOR SOME TIME. YOU STILL WORK SO CLOSELY WITH THEM. WHERE ARE WE, WHAT GOES ON HERE? OJ: FIRST, WELCOME TO SKUNK WORKS. I HOPE YOUR TEAM IS ENJOYING THE MYSTERY AND THE MAGIC THAT IS HERE. SKUNK WORKS, 480 YEARS, HAS EXISTED FOR THE PURPOSE OF DELIVERING ON URGENT NATIONAL SECURITY OBJECTIVES. WHERE WE ARE DISCONTINUING THAT MISSION WHICH MATTERS TO ALL OF US. IN THIS MOMENT, LIKE WE HAVE HEARD, NATIONS NEED TO GO FASTER, THEY NEED US TO BRING CAPABILITIES TO THE FIGHT AND IT TURNS WITH SPEED AND WITH AN INTEROPERABILITY PURPOSE THAT ONLY SKUNK WORKS HAS DELIVERED ON IN THE PAST. ED: SO MUCH FAMILIARITY WITH THE F-35 FROM THE AMERICAN PUBLIC, THE WORLD, MANNED FIGHTER, BUT VECTIS IS THE AUTONOMOUS CRAFT BORN OUT OF SKUNK WORKS. HOW DOES THAT WORK, BEING AN IDEA TO CAPABILITY, DEPLOYMENT? OJ: CORE TO DELIVERING ON THE SECURITY OBJECTIVES IS KNOW WHAT OUR CUSTOMERS NEED WELL AHEAD OF TIME. F-35 WAS ACTUALLY INVENTED HERE AT SKUNK WORKS. NOW BEING PRODUCED IN THE BEER AERONAUTICS. VECTIS IS SIMILAR, COMES FROM A LONG DNA OF YOUR OWN DEVELOPMENT WE DID STARTING IN THE 1960'S ALL THE WAY TO KNOW. ED: SORRY TO INTERRUPT, IN THE 1960'S, THERE WAS WORK ON DRONES? OJ: IT'S A GREAT SKUNK WORKS STORY, IF YOU GO BACK IN THE PAST, THE U.S. AND THE SOVIET UNION SIGNED A TREATY THAT SAID WE WILL NOT LIE MANNED FLIGHTS OVER EACH OTHER'S COUNTRY. IMMEDIATELY, THE CIA CAME TO SKUNK WORKS AND SAID WE NEED TO FLY OVER THE COUNTRY. OUT OF THAT WAS BORN THE D21, BLUE TWO MILES PER HOUR AS A DRONE IN THE 1960'S, AND NOW THAT HERITAGE WE FIND BEHIND US IN THE LOCKHEED MARTIN VECTIS. VECTIS IS BRINGING TOGETHER THE ABILITY TO DESIGN AND DEVELOP ADVANCED HARDWARE WITH ADVANCED CAPABILITIES IN THE SOFTWARE AND OPEN ARCHITECTURE THAT WILL COME ALONGSIDE THE F-35 AND CREATE THE FUTURE OF AIR DOMINANCE. ED: THIS IS BEING INTERNALLY FUNDED, VECTIS, BUT IS VECTIS THE NEXT BIG AERONAUTICS FRANCHISE FOR THE COMPANY IRRESPECTIVE OF THERE IS A HUMAN IN THAT PLATFORM OR NOT? OJ: VECTIS REPRESENTS US UNDERSTANDING OUR CUSTOMERS PROBLEMS AND THE CHALLENGES THAT WE WILL SEE IN AIR DOMINANCE AND GETTING AHEAD OF THAT. WE LIKE TO SAY AT SKUNK WORKS, ONLY ONE MIRACLE PER PROGRAM. THE REALITY IS WE HAVE TO BURN THOSE MIRACLES IN ORDER TO LAND A PROGRAM LIKE VECTIS. WHILE IT APPEARS NEW TO THE PUBLIC, WE'VE BEEN WORKING ON THE PIECES OF THAT. AS FAR AS THE FRANCHISE GOES, WE'VE BEEN INVESTING IN TECHNOLOGIES THAT WILL BUILD THIS INCREDIBLE CCA FOR A LONG TIME, AND NOW WE ARE GETTING OUT AHEAD OF REQUIREMENTS, LISTEN TO THE GLOBAL DEMAND FOR THESE. WE SEE THAT CAPABILITY IN THIS LETHAL, SURVIVABLE, ADAPTABLE AIRPLANE THAT WE ARE BUILDING TO COME ALONGSIDE THE INCREDIBLE WORK THAT THE FIFTH GENERATION PLATFORMS, BOTH THE F 22, HAVE PROVEN VALUABLE. ED: HOW MUCH IS A PROGRAM LIKE THAT COST, HOW MUCH IS A TICK IN DOLLAR TERMS? OJ: IT TAKES INCREDIBLE COMMITMENT. AT LOCKHEED MARTIN, WE ARE COMMITTED TO INVEST AHEAD IN ORDER TO BE ABLE TO DELIVER ON THE SOLUTIONS. WHILE THE EXACT NUMBERS ARE LESS IMPORTANT THAN THE COMMITMENT, -- ED: YOU WILL NOT DISCLOSE. OJ: WE ARE FOCUSED ON THOSE THINGS THAT WE THINK WILL MATTER THE MOST AND LISTENING TO THE GLOBAL NEED FOR THIS CAPABILITY. WE ARE INVESTING TO MAKE SURE IT'S READY. ED: THE REASON I ASK ABOUT THE NEXT, TRULY MAJOR AERONAUTICS FRANCHISE, IF YOU THINK ABOUT THE U.S. AIRCRAFT PROGRAMS, SOME OF THEM HAVE GONE TO YOUR RIVALS. VECTIS ISVECTIS RESPONSE TO THAT OR IN ISOLATION? SOMETHING DIFFERENT TO THE F-35 PROGRAM ENTIRELY? OJ: WHAT I SEE FOR THE FUTURE OF AIR DOMINANCE IS ACTUALLY NOT A SINGULAR PLATFORM, IT'S ABOUT THE FAMILY OF SYSTEMS AND PLATFORMS ARE GOING TO BE ABLE TO CONNECT ACROSS DOMAINS, FROM SPACE THROUGH THE AIR DOWN TO THE SEA, TO ALL THE SHOOTERS. VECTIS IS NOT IN RESPONSE TO ANY PARTICULAR COMPETITION. WHAT IT IS IS THE REALIZATION OF WHAT WILL BE REQUIRED TO DETER, FLIGHT, AND WHEN IN THE FUTURE. I BELIEVE THAT WHAT YOU SEE BEHIND YOU IS WHERE WE ARE GOING TO START AT A CAPABILITY TO THE FAMILY OF SYSTEMS, AND PROGRAMS LIKE THE F-35, PEOPLE DON'T REALIZE, THERE ARE 1350 F-35'S ALREADY OUT IN THE WORLD TODAY IN COMBAT. THAT FLEA IS GROWING. U.S. AND ALLIES. THAT FLEET IS GROWING AT 160 A YEAR. WHEN WE ADD THE CAPABILITIES LIKE VECTIS, WE HAVE SHOWN IT CAN BE CONTROLLED BY A SINGLE F-35, AS MANY AS EIGHT VECTIS BY A SINGLE MOM. IMAGINE THE MESS AND SKILL OF A PROGRAM LIKE THAT. YES, WE SEE THIS FUTURE FAMILY OF SYSTEMS UNDERPIN BODIES FOR DINNER EVERY DEBT GENERATION OF PRODUCTS THAT WE HAVE. ED: PROJECT MERIDIAN IS THE BIG NEWS FOR YOUR INDUSTRY. IN SIMPLE TERMS, SECRETARY HEGSETH DECIDING A 120-THE EFFORT TO DO THE SAME THING THAT YOU HAVE PITCHED COME AND GET AHEAD OF THE THREAT. COME WITH PROPOSALS. ELON MUSK IS INVOLVED, PALMER LUCKEY. YOUR RESPONSE TO IT, INTERPRETATION OF IT? SIMILAR TO WHAT YOU SAY YOU ARE DOING. OJ: I APPRECIATE THE LEADERSHIP THAT SECRETARY HEGSETH HAS, LOOKING FOR PROJECT MERIDIAN AND THE CHANGING NATURE OF WARFARE. BUT WE SHOULD SEE AND LEARN FROM COMPEX WE HAVE AND HOW WE BEST PREPARE FOR THE FUTURE. HERE AT LOCKHEED MARTIN, WE ARE ALWAYS IN THE POSTURE LOOKING AHEAD. WHAT PRODUCT MERIDIAN WILL DO, WE TALK ABOUT THAT BIG TENT. I AM IN AND OUT OF THE PENTAGON EVERY WEEK SOMETIMES, SO WE WORK DIRECTLY WITH THE DEPARTMENT OF WAR AS WELL AS THE AGENCIES TO HELP ENVISION THIS. MERIDIAN WILL HELP TO OPEN UP THAT TENT TO ENABLE OTHERS. HERE AT SKUNK WORKS AT ACROSS OUR LOCKHEED MARTIN ORGANIZATIONS, IF WE FIND SOMETHING, WE WILL PULL THAT INTO THE BIGGER TENT TO DELIVER CAPABILITIES. ED: THIS IS THE QUESTION THAT I GOT FROM THE TECH AUDIENCE. LET'S SAY THERE IS A CLOSE AIR SUPPORT MISSION, VECTIS INVOLVED. THERE IS NOT A CONTRACT YET, BUT HOW DOES THAT WORK IN REAL TERMS? FOR THE EVERYDAY PERSON, WHAT ARE YOU TALKING ABOUT THEIR? OJ: I USED TO GET TO FLY THESE AIRPLANES. I FLEW THE F-22 IN THE PAST. FIFTH GENERATION AIRPLANES HAVE WHAT IS CALLED SENSOR FUSION, WHERE YOU CAN SEE THE ENTIRETY OF THE BATTLE SPACE IN FRONT OF YOU. WHAT YOU ARE USUALLY LIMITED BY IS THE ABILITY TO GET OTHERS TO SEE IT OR HAVE ENOUGH WEAPONS OR ABILITY TO GET TO EVERY PLACE. WHAT VECTIS WILL DO IN A SITUATION LIKE THAT COME IT WILL EXTEND THAT CAPABILITY, THAT INCREDIBLE FUSION AND DECISION ADVANTAGE INTO ACTIONABLE CAPABILITIES, WHETHER THAT BE AN AIR TO AIR EMISSION, AIR TO GROUND MISSION, OR SENSING MISSION. VECTIS ACCOUTREMENT TO THE OTHERS WILL MAKE EVERYONE BETTER AND ENABLE THAT FORCE OF ACTION TO HAPPEN AT A MUCH WIDER AREA OF RESPONSIBILITY, WHICH WILL BE A TREMENDOUS HELP TO THE WAR FIGHTER. ED: UNDER THE CURIOUS NEWS STORY IS NASA BRING BACK THE SR 71. ARE YOU GOING TO HELP THEM WITH THAT? OJ: FOR THOSE I DON'T KNOW, ALSO INVENTED IN SKUNK WORKS. IF YOU HAVE NOT SEEN IT IN A WHILE, I ENCOURAGE YOU TO LOOK. INCREDIBLE AIRPLANE, FLEW AT UNBELIEVABLE SPEEDS. HERE AT SKUNK WORKS, 97% OF THE PORTFOLIO IS CLASSIFIED. I WOULD LOVE TO SEE THE SR 71 FLIGHT AGAIN. WE WILL HAVE TO SEE WHAT NASA CHOOSES. ED: BLOOMBERG TECH DID A GOOD JOB GETTING INTO THE BUILDING, BUT I APPRECIATE THE CLASSIFIED NATURE OF A LOT OF THE WORK THAT GOES ON HERE. IT'S BEEN FASCINATING TO SPEAK WITH YOU, OJ SANCHEZ. THANK YOU VERY MUCH. THANK YOU TO THE TEAM FOR HAVING US HERE. THERE'S A LOT MORE TO COME. WE ARE GOING TO SPEAK TO JON GRUEN, THE CEO OF FORTEM. THIS IS THE BIG TENT IDEA. THAT IS NEXT. THIS IS "BLOOMBERG TECH." ♪ ED: DESPITE THE GROWTH OF VENTURE BACKED DEFENSE TECH FIRMS, DEFENSE PRIMES STILL RECEIVE A THIRD OF U.S. MILITARY CONTRACTS. THESE FIGURES ARE FROM 2025 BUT IT'S OLD AROUND THAT RATE FOR ABOUT 10 YEARS. THE PRIMES ARE NOT IGNORING WHAT THE STARBUCKS CAN OFFER AND ARE INCREASINGLY PARTNERING WITH THEM. LIKE WHEN LUCKY NEEDED A NEW RADAR SYSTEM FOR A NEW CONTAINERIZED LAUNCHER. >> WE SAID WE NEED A MOBILE RELATIVELY INEXPENSIVE RADAR TO GO ALONG WITH THIS AMAZING SYSTEM. ONE OF OUR VENTURE INVESTMENTS CALLED FORTEM BUILDS THOSE KINDS OF RADARS. WE PUT ANOTHER $25 MILLION INTO THE COMPANY AND SAID, HERE IS THE MISSION. WE NEED A READER WITH THIS WEIGHT, THIS FORM FACTOR, THIS BATTERY LIFE. IF YOU THINK DIFFERENTLY, LIKE A TECHNOLOGY COMPANY WITH THINK, AND CONSTANTLY IMPROVE WHAT YOU HAVE, ADD THE NEW HARDWARE WHEN IT'S READY, YOU CAN CONTINUOUSLY IMPROVE THE MISSION CAPABILITY. ED: FORTEM CEO JON GRUEN JOINS US NOW. BREAKING NEWS OVER THE LAST 24 HOURS, $50 MILLION OF SERIES B, LOCKHEED PARTICIPATED IN THAT. THAT IS A SIZABLE ROUND. WHAT DO YOU NEED THAT CAPITAL FOR? CONGRATULATIONS. JON: I APPRECIATE IT. WE ABSOLUTELY NEEDED TO CONTINUE TO SCALE. WE ARE DOUBLING MANUFACTURING THIS YEAR, DOUBLING OUR BOOKINGS, ADDING 250% OF FLOOR SPACE, AND ALL OF THAT REQUIRES CAPITAL TO DO. ED: LET'S GO TO THE CASE STUDY THAT LUCKY TO CEO JIM TAICLET JUST OUTLINED TO ME. THEY APPROACH YOU, THEY LIKE OR TECHNOLOGY. HOW DOES THAT THEN WORK, THE MISSION, THE PLAN? JON: GREAT PARTNERSHIP WITH LOCKHEED MARTIN. IT STARTED ON THE VENTURE SIDE. EARLIER IN OUR STAGE, ENGAGED WITH THE VENTURE TEAM. THEY REALLY VALIDATED OUR CORE TECHNOLOGIES AND THEN ONCE THEY HAD DONE THAT, PUT VENTURE MONEY INTO US, THEN WE HAD EXPOSURE TO THE REST OF THE CORPORATION. WE WERE ABLE TO FIND THE RIGHT PROJECTS FOR OUR TECHNOLOGY TO BE APPLICABLE TO. OVER TIME, THAT HAS GROWN AND WE HAVE DONE A NUMBER OF PROJECTS AND PRODUCTS THAT HAVE REAL TRACTION IN THE MARKET. THIS CURRENT INVESTMENT IS REALLY A REFLECTION OF THAT, THE MARKET TRACTION OF THE CAPABILITIES OF OUR INTEGRATED PRODUCTS. ED: WE ARE HERE IN SKUNK WORKS IN THE UNITED STATES, CALIFORNIA. I APPRECIATE THAT. WHAT IS HAPPENING IN EUROPE AND UKRAINE, THE WAR IN IRAN, DRONES AND WARFARE. THAT IS THE LEARNING, I THINK. THAT IS WHAT I'M HEARING FROM THIS PENTAGON AND FROM JIM HIMSELF. WHERE DOES FORTEM FIT IN THAT? JON: WE ARE INSTRUMENTAL IN THAT. WE HAVE BEEN IN ALL OF THOSE WAR ZONES FOR FOUR TO FIVE YEARS. WE HAVE LEARNED ALL OF THOSE HARD LESSONS. WE ARE VERY OUT IN FRONT AND RAPIDLY DEVELOPING THE TECHNOLOGIES AND PRODUCTS THAT ARE GOING TO BE THE FOREFRONT OF WARFARE IN THE FUTURE. ED: THAT DATA I SHARED, DELIBERATE BUT TOGETHER. IS THAT DIFFERENT FROM COUNTER GROWN SPENDING? THERE IS A DISTINCTION IN THOSE PROGRAMS. JON: TO DATE, GROWN AND COUNTER GROWN ARE DIFFERENT BUDGET LINE ITEMS TYPICALLY. DIFFERENT CUSTOMER STATUS. IT IS A DYNAMIC OF THE MARKET BUT IT IS A CAT AND MOUSE GAME IN SOME SENSE. RAPID DEVELOPMENT ON THE GROUND THREAT OFFENSIVE SIDE, YOU HAVE TO BE OUT IN FRONT ON THE DEFENSIVE SIDE. DEFENSIVE TYPICALLY MEANS LAYERS TO BE EFFECTIVE. IT IS NOT A ONE FOR ONE, IT IS A LAYER OF SOLUTION, SENSORS, EFFECTORS TO REALLY BE READY FOR ANY OF THOSE DYNAMIC THREATS. ED: YOU ARE AN AMERICAN COMPANY. HOW ARE YOU ABLE TO DO BUSINESS WITH OUR NATO ALLIES? JON: PARTNERSHIPS. WHETHER IT IS LOCKHEED MARTIN INTERNATIONALLY OR SOME OTHER PARTNERSHIPS. BASICALLY, ANY CUSTOMER TODAY, IF YOU HAVE A BEST OF BREED PRODUCT, IF YOU HAVE THE RIGHT PRODUCT, THEY WILL BUY FROM YOU. WE ARE DEFINITELY LOOKING TO MAKE SURE THAT WE HAVE ENDURING PARTNERSHIPS AROUND THE WORLD THAT ALLOW US TO CONTINUE WHAT WE HAVE BUILT THEIR, BUT IT ENDS UP BEING, YOU HAVE TO BE THE BEST. ED: WHAT HAPPENS NEXT, WHAT IS YOUR PRIORITY FOR GROWING THIS COMPANY? JON: EXACTLY THAT, STAYING AHEAD OF THE DEMAND ON PRODUCTS. WE HAVE TO DELIVER SCALE THAT WE HAVE NEVER DONE BEFORE. AT THE SAME TIME, STAYING AHEAD OF THAT OFFENSIVE THREAT CURVE. WE HAVE TO MAKE SURE WE ARE TAKING THE DATA, APPLYING IT INTO OUR NEW PRODUCTS AND THAT HAVING THE PARTNERSHIPS TO DEPLOY AT SCALE. ED: JON GRUEN, CEO OF FORTEM, JUST CLOSED A SERIES B, EXTENDING ONTO TECHNOLOGY, WORKING TOGETHER ON THE MISSION. THANK YOU VERY MUCH. COMING UP AT SKUNK WORKS, LOCKHEED MARTIN, CALIFORNIA, TECH BILLIONAIRES ELON MUSK AND PALMER LUCKEY MAKE IT A SAY IN THE FUTURE OF WARFARE. WE WILL EXPLAIN THAT, NEXT. THIS IS "BLOOMBERG TECH." ♪ ED: THE DEFENSE DEPARTMENT HAS TASKED TWO OF ITS BIGGEST CONTRACTORS TO LEAD AN EFFORT TO STUDY THE FUTURE OF WARFARE AND DESIGN WEAPONS THAT AMERICAN SERVICE MEMBERS WILL NEED IN THE YEARS AHEAD. THE INITIATIVE IS CALLED PROJECT MERIDIAN AND WILL BE CO-LED BY PALMER LUCKEY, ELON MUSK, AND FORMER HOUSE SPEAKER NEWT GINGRICH. WENDY BENJAMINSON IS WITH ME. IT WAS SO INTERESTING WOMEN'S ANNOUNCEMENT WAS MADE. EXPLAIN THE BASIC CONCEPT. WENDY: I WILL DO MY BEST. THE DEFENSE SECRETARY PETE HEGSETH ANNOUNCED THIS AS ONE OF SIX INITIATIVES HE ANNOUNCED IN HIS STATE OF THE FORCE OF SPEECH THAT HE GAVE ON WEDNESDAY. TO AN AUDIENCE OF HAND-PICKED TROOPS, THEN BROADCAST ON THE PENTAGON WEBSITE. WHAT THIS IS SUPPOSEDLY IS A GROUP OF PEOPLE LED BY THOSE THREE THAT YOU MENTIONED, THAT WILL STUDY OVER 120 DAYS ONLY -- THAT'S ALL THEY HAVE FOR THIS -- WILL STUDY WHAT WARFARE WILL LOOK LIKE IN THE FUTURE, WHAT TOOLS THEY NEED, WHAT WEAPONS THEY NEED, WHAT VEHICLES THEY NEED. WHAT MAKES THIS PARTICULARLY INTERESTING IS THAT ELON MUSK AND PALMER LUCKEY ARE TWO OF THE BIGGEST DEFENSE CONTRACTORS IN THE WORLD. THEY MAKE A TREMENDOUS AMOUNT OF MONEY FROM THE U.S. TAXPAYER VIA THE PENTAGON, AND NOW, THEY ARE IN CHARGE OF DECIDING WHAT TOOLS THE MILITARY WILL HAVE. I CAN'T IMAGINE A WORLD IN WHICH THEY DON'T PROFIT FROM THIS. ED: YOU AND I HAVE DISCUSSED THE PRESIDENT'S PROXIMITY TO CEOS, PRIVATE INDUSTRY. YOU NOTED THE 120-DAY LIMIT. WHAT KIND OF ACCESS AND AUTHORITY AREMUSK AND LUCKEY GOING TO HAVE? WENDY: THEY TWEETED OUT PHOTOS OF THOSE THREE WOULD HEGSETH AND THE ENTIRE BOARD MEETING IN THE PENTAGON. THESE ARE NOT OPEN TO THE PUBLIC. I DON'T KNOW THAT WE WILL BE ABLE TO GET TRANSCRIPTS. WE DON'T KNOW WHAT THEY ARE GOING TO COME UP WITH. THEY ARE CLEARLY THERE, WORKING WITH CIVILIAN MILITARY OFFICIALS. WE DIDN'T SEE ANY MINUTE MILITARY OFFICIALS IN THE ROOM. THERE WERE SOME MEMBERS OF CONGRESS. THE 120 DAYS IS A LIMIT BECAUSE THAT IS WHEN THE SPECIAL GOVERNMENT EMPLOYEE STATUS ENDS, AND THEN THEY WOULD HAVE TO PAY THESE GUYS A SALARY. THEY HAVE JUST A FEW MONTHS TO COME UP WITH THESE NEW TOOLS. ED: BLOOMBERG'S WENDY BENJAMINSON OUT OF D.C., THANK YOU VERY MUCH. COMING UP, WE ARE GOING TO DISCUSS LOCKHEED'S TECHNOLOGY STRATEGY AND SOME OF THE INVESTMENTS THAT THEY'VE BEEN MAKING. THE CONVERSATION ALSO ABOUT AI. DR. SARAH HIZA, SENIOR VICE PRESIDENT OF TECHNOLOGY AND STRATEGIC INNOVATION. LOCKHEED HAS BEEN TALKING TO JENSEN HUANG AND NVIDIA, USING GPUS FOR A LONG TIME. WE WILL TALK ABOUT THAT, TOO. THIS IS "BLOOMBERG TECH." ♪ >> WE NEED TO MATCH THE COST OF THE SOLUTION TO THE COST OF THE THREAT. IT IS WELL KNOW THAT THERE ARE $4 MILLION PATRIOT MISSILES TO SHOOT DOWN MAY BE A $50,000 GROWN. THAT IS A BAD EXCHANGE RATIO. THE OTHER EXCHANGE RATIO, WE HAVE TO CONSIDER HERE, WITH WHAT WE HAVE TODAY IN THE STOCKPILES, WHAT IS THE TRADE-OFF BETWEEN LETTING THAT SHAHED DRONE HIT A MARINE BARRACKS IN QATAR, OR TO HIT A FACTORY, OR AN OIL PROCESSING STATION IN SAUDI ARABIA? THE TRADE-OFF IS NOT JUST THE COST OF THE ITEMS, IT IS THE COST OF THE DAMAGE. ED: WELCOME BACK TO "BLOOMBERG TECH." THAT WAS A LUCKY TO JIM TAICLET TALKING ABOUT ONE OF THE LESSONS LEARNED FROM THE U.S. WAR WITH IRAN. HE ACKNOWLEDGED THE INDUSTRY IS SEEKING CHEAPER AUTONOMOUS SOLUTIONS. THAT IS NOT HISTORICALLY AN AREA THAT LOCKHEED HAS DOMINATED, ACCORDING TO DATA COMPILED BY BLOOMBERG. THESE ARE WHERE THE CONTRACTS ARE GOING. SPECIFICALLY IN THE DRONE SEGMENT IN THE LAST TWO YEARS, BUT LUCKY IS PUSHING HARD AND INNOVATION, COST EFFICIENCY IN TERMS OF MILITARY OPTIONS. THIS IS ABOUT THE NEXUS OF AI AND AEROSPACE. WITH US NOW IS DR. SARAH HIZA, SENIOR VICE PRESIDENT OF TECHNOLOGY AND STRATEGIC INNOVATION. THANK YOU FOR HAVING US HERE AT SKUNK WORKS. SARAH: ABSOLUTELY APPEARED WELCOME. IT'S AN HONOR TO BE HERE. NO BETTER PLACE TO TALK ABOUT INNOVATION AND TECHNOLOGY THAN SKUNK WORKS BASED ON OUR MUTATION. IT'S A CENTER OF EXCELLENCE THAT WE HAVE. ED: I WANT TO GET STRAIGHT TO THE IDEA OF AI, WHAT AI ACTUALLY LOOKS LIKE WITHIN LOCKHEED, IN TERMS OF THE PROGRAM FOR NEXT GENERATION PLATFORMS AS WELL. SARAH: WE HAVE CHOSEN TO BE AGNOSTIC WHEN IT COMES TO FRONTIER LABS. THAT IS AN INTENTIONAL PART OF OUR STRATEGY. WE SEE IT A LITTLE BIT LIKE A HORSE RACE. WE ARE UNCLEAR WHICH MODEL WILL PLAY OUT IN THE LONG TERM, AND THERE ARE PROS AND CONS TO EACH. WE HAVE 55 DIFFERENT LARGE LANGUAGE MODELS THAT WE ARE USING TO RUN LOCKHEED MARTIN. TO YOUR POINT, WE USE IT FOR BOTH INTERNAL BUSINESS OPERATIONS TO ACHIEVE EFFICIENCIES AND SO FORTH, WHETHER THAT IS HUMAN RESOURCES, FINANCIAL ANALYSIS, BUT WE ALSO APPLIED FOR MISSION APPLICATIONS. WE HAVE A BUNCH OF FIELDED SYSTEMS TODAY, AIRCRAFT OR MISSILE SYSTEMS, ETC. BY USING AI, WE CAN MAKE THEM MORE RELIABLE AND EXPAND THEIR EFFICACY. ED: IN THE NEWS CYCLE, THE CONCERN THAT'S BEEN RAISED IS ABOUT AN AGENT MISBEHAVING. THAT HAS BEEN LARGELY FLAGGED IN THE CYBERSECURITY CONTEXT. FOR THE AMERICAN PUBLIC AND THE WORLD, THEIR FEAR WOULD BE, WHAT IF AN AI AGENT DOES SOMETHING RELATED TO WEAPONS SYSTEMS. HOW DO YOU KEEP IT UNDER CONTROL? SARAH: WE DO TAKE IT SERIOUSLY, FIRST OF ALL. WE HAVE BEEN WORKING WITH A AND MACHINE LEARNING FOR TWO DECADES. THAT MAY RAISE A QUESTION, WHY IS IT MORE UBIQUITOUS? THE LOGJAM WAS AROUND COMPUTER CAPABILITY. WE HAVE OVERCOME THAT IN THE LAST THREE OR FIVE YEARS WITH GPUS, TPUS COMING ONLINE. TO YOUR POINT, BECAUSE WE'VE BEEN WORKING WITH IT FOR SO LONG, WE UNDERSTAND HARNESSING. CRITICAL TO THE WAY WE GO ABOUT AI IS THE SAME WAY THAT WE GO ABOUT A MISSILE SYSTEM OR AIRCRAFT. WE PUT IT THROUGH RIGOROUS TESTING INCLUDING CORNERS OF THE BOX, SO WE UNDERSTAND ITS CAPABILITY, TO ENSURE THE HARNESSING IS SUFFICIENT. IN THE SAME WAY WE WOULD GO THROUGH MANY HOURS OF FLIGHT TESTING FOR AN AIRCRAFT, WE DO THE SAME THING WITH AI BEFORE WE DEPLOYED IT AND APPLY IT. ED: HOW IS AI CHANGING THE FUTURE OF WARFARE, WHERE YOU THINK THIS WILL MANIFEST MOST? SARAH: CERTAINLY IN AUTONOMY, WE WILL SEE A LOT OF ADVANCEMENT, SPECIFICALLY INITIALLY WITH CRUDE, UN-CREW TEAMING. ED: THIS IS WHAT WE ARE TALKING ABOUT WITH VECTIS, THE IDEA THAT VECTIS IS PART OF A MISSION THAT COULD HAVE DIFFERENT TYPES OF AIRCRAFT. SARAH: YOU COULD HAVE A PILOTED F-35 WORKING IN COLLABORATION WITH THE VECTIS IN THAT CASE. ANOTHER WAY COME IT'S AROUND INTEROPERABILITY. RIGHT NOW, WE HAVE A LOT OF INDIVIDUAL SYSTEMS, WHETHER THAT IS LOCKHEED MARTIN OR OUR COMPETITORS IN THE DEFENSE INDUSTRIAL BASE, AND THEY DON'T TALK TO EACH OTHER. HAVING THE RIGHT DATA LETTER TO HAVE INTEROPERABILITY BETWEEN THOSE SYSTEMS WILL BE ENABLED BY AI. ED: TAKE ME DEEP INTO SKUNK WORKS. BEHIND YOU IS SOMEWHERE I CANNOT GO. IT IS ALL CLASSIFIED. YOUR TEAMS, THE AI WORK THAT IS HAPPENING HERE, WHAT KIND OF PEOPLE ARE THOSE, WHERE DO THEY COME FROM? ARE THEY FROM THE WORLD OF RESEARCH, FROM THE WORLD OF DEFENSE? HOW HAVE YOU BUILT UP THE COMPETENCE? SARAH: WE HAVE WORKED ON THIS FOR A COUPLE DECADES, BUT YOU HAVE EVERYTHING FROM SOFTWARE ENGINEERS TO MECHANICAL ENGINEERS. THEY GAINED EXPERTISE AND WE EXPOSE THEM THROUGH TESTING, TRAINING. I WOULD SAY CERTAINLY ALMOST ALL OF THEM HAVE TECHNICAL AND SCIENCE AND ENGINEERING BACKGROUNDS, BUT YOU DON'T NEED TO BE A SOFTWARE EXPERT TO FIND YOURSELF IN THE MIDDLE OF AI AND APPLYING IT, IN AUTONOMOUS SYSTEMS. ED: WE TALKED ABOUT HOW THESE STORIED AND FABLED AIRCRAFT PERFORM OUT OF SKUNK WORKS SINCE 1943. WHY IS SKUNK WORKS THE BEST PLACE FOR THESE LEADING TALENTS IN AI TO BE WORKING? WHY NOT A DIFFERENT PART OF LOCKHEED, LIKE YOU DO WITH FORTEM, FOR EXAMPLE, WORKING WITH AN OUTSIDE PARTNER TO DO MORE OF THE WORK THERE? SARAH: A LOT OF THE FOLKS THAT WORK AT LOCKHEED MARTIN AND HERE AT SKUNK WORKS, WE LIKE TO SEE OUR INNOVATIVE RESULTS INTEGRATED BUT ULTIMATELY SCALED, SCALED AT RELEVANCE, SO WE MAKE AN IMPACT TO THE NATION AND IN SOME CASES THE WORLD. WHEN YOU WORK HERE, YOU CAN WORK ON THOSE THINGS THAT SCALE RELEVANCE. YOU MENTIONED FORTEM. WE WERE WITH ALL KINDS OF COMPANIES. THAT IS ANOTHER COOL PART OF WORKING AT LOCKHEED MARTIN. WE WORK BEYOND THE WALLS OF SKUNK WORKS CAN'T BEYOND THE WALLS OF LOCKHEED MARTIN. WE WORK WITH LARGE COMMERCIAL TECH COMPANIES. IT GIVES US LOTS OF OPPORTUNITY TO SEE DIFFERENT TECHNOLOGIES AS WELL AS DIFFERENT TYPES OF BUSINESSES. ED: THERE ARE OTHER NASCENT TECHNOLOGIES. LET'S TAKE QUANTUM FOR EXAMPLE. IN THE WORLD, EVERYONE SAYS, WHEN IS THIS MOVING BEYOND THE LAB, RESEARCH? THINK ABOUT WHAT IS AT STAKE WITH LUCKY. IS QUANTUM ACTUALLY A USEFUL TECHNOLOGY TO YOU TO GET PLATFORMS DEPLOYED? SARAH: THIS PAST WEEK ACTUALLY, WE ANNOUNCED THE QUANTUM INNOVATION CENTER. THAT IS BECAUSE WE THINK WE ARE ON THE CUSP OF A NEXT BREAKTHROUGH AROUND QUANTUM. WE ARE NOW SEEING IT MOVE OUTSIDE THE LAB. FOR US, YES, WE ARE INTERESTED IN QUANTUM COMPUTE, AND WE WILL LEVERAGE THAT IN THE SAME WAY THAT WE DO WITH GPUS AND TPUS, BUT SPECIFICALLY FOR NATIONAL SECURITY, WE ARE LOOKING AT QUANTUM TO DO REMOTE SENSING, SECURECOMMS, POSITION NAVIGATION AND TIMING. THOSE ARE RELATED TO NATIONAL SECURITY. TO ANSWER YOUR QUESTION AROUND THE LAB, NEXT YEAR, WE PLAN TO DO DEMOS INCLUDING SOME FROM SPACE USING QUANTUM TECHNOLOGIES. ED: WHICH PIECE OF EMERGING TECHNOLOGY, WHERE IS SKUNK WORKS JUST AHEAD, THE WORLD UNDER APPRECIATE WHAT YOU ARE ALREADY ON IT? SARAH: CERTAINLY THINK AUTONOMY IS ONE OF THOSE. AUTONOMY IS NOT NEW TO US. THEN THE APPLICATION OF AI, BOTH OF THOSE WE'VE BEEN WORKING ON FOR A LONG TIME. WE HAVE THE FOUNDATION AND THE EXPERTISE AND WE UNDERSTAND THE MISSION SO THAT WE CAN DELIVER A HOLISTIC SOLUTION. ED: DOES THE CUSTOMER BELIEVE IN THE TECHNOLOGY? SARAH: I THINK THEY DO. THEY RELY ON IT EVERY DAY. ED: YOU SPEND A LOT OF TIME I GUESS EXPLAIN TO THEM THE BENEFIT OF AI. SARAH: I DON'T THINK YOU HAVE TO EXPLAIN THE BENEFIT, THEY KNOW THE BENEFIT OF AI. THEY HAVE SEEN IT EMPLOYED IN SYSTEMS WHERE WE HAVE DEMONSTRATED THAT. I WILL SHARE RIGHT NOW THAT WE ARE WORKING ON A PROJECT, AS WE ADVANCE THE F-35, WE ARE BRINGING ON EVEN MORE ADVANCED SENSOR CAPABILITY AND WE HAVE DISCOVERED SOME MATH AND PHYSICS CHALLENGES AND WE HAVE REACHED OUT TO OPENAI. WE SAW THE HEADLINE THAT THEY WERE ABLE TO OVERCOME THE MATH PROBLEM THAT RESEARCHERS HAVE BEEN WORKING ON FOR YEARS. WE HAVE SOME MATH AND PHYSICS CHALLENGES AS WE EMPLOY THIS NEXT SENSOR CAPABILITY ON THE F-35, AND OPENAI IS WORKING NEXT TO US TO UNCOVER SOME OF THAT. ED: IS THAT JUST THEIR TEAMS OR THEIR SPECIFIC UNDERLYING MODEL IS THE BEST SOLUTION? SARAH: THEIR TEAM IS WORKING ALONGSIDE US. ED: IN BED WITH SKUNK WORKS. SARAH: OPENAI IS WORKING WITH THE SKUNKS WORKS TEAM TO SEE IF WE CAN OVERCOME THAT CHALLENGE THAT WE HAVE ENCOUNTERED AS WE ADVANCE OUR SENSORS. ED: DR. SARAH HIZA, SENIOR PRESIDENT OF TECHNOLOGY AND STRATEGIC INNOVATION. AGAIN, WE ARE LIVE INSIDE SKUNK WORKS. THANK YOU VERY MUCH. WE ARE LIVE INSIDE THE STORIED LAB, ORIGIN OF SO MANY FABLED AIRCRAFT. THERE IS A LOT MORE TO COME UP IN THE SHOW. THE NEXT CONVERSATION IS WITH THE DIVERGENT CEO LUKAS CZINGER. THIS IS "BLOOMBERG TECH." ♪ THE PENTAGON WANTS WEAPONS BUILT FASTER, CHEAPER, AND A FAR GREATER SCALE. DIVERGENT IS BETTING ADVANCED MANUFACTURING CAN HELP AND IS ALREADY WORKING ON IT WITH LOCKHEED MARTIN'S SKUNK WORKS, NEW WAY TO DESIGN AND BUILD AIRCRAFTS IS THE CASE STUDY. THE DIVERGENT CEO LUKAS CZINGER IS WITH US. THIS HAS BEEN A STORY FOR SOME TIME, WE INDUSTRIALIZING THE DEFENSE INDUSTRIAL BASE, BRINGING THINGS BACK TO AMERICAN INCLUDING THE SUPPLY CHAIN. YOU ARE DOING THE BUILDING BIT, ADVANCED MANUFACTURING. EXPLAIN AND PRACTICE HOW THAT WORKS. LUKAS: AT DIVERGENT, WE ARE BUILDING THE INFRASTRUCTURE LAYER. WE ARE THINKING PRIMES, PRODUCT COMPANIES, BELOW THAT, THERE IS A LAYER THAT HAS TO HAVE ACTUAL CAPABILITY AND CAPACITY TO MANUFACTURE. BUT WE ARE BUILDING IS THAT LAYER. WHEN YOU TALK ABOUT RESHORING, TALK ABOUT MANUFACTURING CAPACITY, WE CARE DEEPLY ABOUT THAT. WE AGREE WE NEED MORE OF IT. NOT ONLY MORE BUT NEW CAPABILITY. AT DIVERGENT, WHAT WE ARE DOING IS BUILDING THE NEXT GENERATION INDUSTRIAL BASE, NOT ONLY CAPACITY BUT ALSO CAPABILITY AND ADVANCED CAPABILITY. ED: THIS IS TRICKY. A LOT OF WHAT YOU SEE AROUND US IS CLASSIFIED, BUT YOU DON'T JUST WORK WITH LUCKY, YOU WORK WITH MANY OF THEIR PEERS AND COMPETITORS. HOW DO YOU MANAGE THAT? LUKAS: WE SEE OURSELVES AS A FORCE MULTIPLIER. WE DON'T SEE OURSELVES AS A PRIME. WE MANUFACTURE AND WE PARTNER WITH THESE BUSINESSES. WE END UP BEING THEIR MANUFACTURING PARTNER. SUPPLIER, YES, BUT WE ARE DOING A CRITICAL PART FOR ASSEMBLY. SAY AN AIRFRAME IN THE CASE OF LOCKHEED MARTIN. WE WANT TO SEE ALL OF THESE PROGRAMS SUCCEED BECAUSE OUR WAR FIGHTERS NEED THE HARDWARE. ED: FROM A NATIONAL SECURITY PERSPECTIVE, YOU HAVE TO BEAT VERY IN CONTROL. LUKAS: WE NEVER LOCK UP OUR CUSTOMER'S IP, THAT STAYS WITH LUCKY, RAYTHEON. WHAT WE DO IS ENGINEER THAT AIRFRAME AND MAKE SURE THAT WE ARE SUPPLYING ON TIME AT THE RIGHT QUALITY LEVEL AND IMPORTANTLY AT SCALE. THE LAST ONE IS REALLY PART OF THE MISSING FACTOR. HOW MANY OF THESE UNITS CAN YOU MAKE PER YEAR FOR YOUR CUSTOMER? THAT IS WHERE DIVERGENT SHINES. ED: HOW MUCH OF THIS IS ABOUT SPEED? THE CONCLUSION ABOUT IRAN, EVERYTHING RANGING FROM MUNITIONS APPLY TO THE TYPES OF TECHNOLOGY, THE NET RESULT IS THE PENTAGON WANTS THINGS FASTER AND CHEAPER. LUKAS: SPEED IS THE MOST IMPORTANT AND SPEED WITH SCALE. WHAT IS YOUR TIME TO MARKET? YOU GET A NEW PROGRAM, HOW QUICKLY CAN YOU GET IN THE AIR? WHEN CAN YOU FIELD IT? ALSO WHEN YOU LEARN A LESSON, HOW CAN YOU ADAPT IT, CHANGE THAT MISSINON SET. ED: HOW QUICKLY CAN YOU REACT? LUKAS: INCREDIBLY QUICKLY. UNDER THREE MONTHS, WE COULD HAVE A CRITICAL DESIGN AND LESS THAN THAT, SAY, TWO OR THREE WEEKS. WE HAVE SHOWN WITH PRIMES IN THE LOOP, WE CAN GO FROM START TO FULL PRODUCTION IN UNDER A YEAR. THAT IS MUCH FASTER THAN PROGRAMS THAT WERE TAKING FIVE PLUS YEARS TO GET TO MARKET. ED: HAS THIS ADMINISTRATION TAKEN ANY ACTION THAT HAS ACTUALLY ALLOWED YOU TO DO THAT, TO MOVE FASTER, TO SCALE WHAT THEY WANT? THIS IS SOMETHING THEY HAVE SHARED AS A GOAL, TOO. LUKAS: YES, THEY ARE COMPLETELY MISSION ALIGNED, AND THEY HAVE BEEN A DRIVING FORCE TOP DOWN. WHERE WE SEE IT, WE DO ADVANCED MANUFACTURING, 3D PRINTING OF METALS. THIS IS A BETTER WAY IN OUR OPINION TO MAKE A MENTAL STRUCTURE FOR MOST OF THESE SYSTEMS. HOW CAN WE QUALIFY THESE AT A HIGH PACE? THAT IS WHERE WE HAVE SAID WE NEED THE RIGHT PROCESS TO BRING IN NEW TECHNOLOGY, AND WE CANNOT GET BURDENED BY TOO CAUTIOUS OF A RISK POSTURE. ED: THAT SEEMS LIKE AN ISSUE. FOR EXAMPLE, WHAT ABOUT CUTTING RED TAPE? LUKAS: PART OF THAT RED TAPE IS IN ACCEPTING NEW TECHNOLOGIES BECAUSE IT'S ALL ABOUT THE DEMAND SIGNAL. IF WE GET ACCEPTANCE FROM THE AIR FORCE, NAVY, ARMY, OTHER SERVICES, THEN WE WILL GET DEMAND SIGNAL IN ON PROGRAMS. THAT DEMAND SIGNAL WILL DRIVE INVESTMENT INTO NEW FACTORIES AND THEN WE ARE PRODUCING AT SCALE. FOR US, THAT IS THE BIGGEST AREA WHERE THE ABDOMEN CAN HELP US. ED: WE HAVE BEEN SHOWING SOME OF WHAT DIVERGENT DOES. TAKE US INSIDE YOUR COMPANY. HOW HAVE YOU GROWN, HOW IS CAPITAL RIGHT NOW? LUKAS: WE HAVE BEEN AROUND FOR OVER A DECADE AND WE STARTED WITH A SIMPLE THESIS. PRODUCT AGNOSTIC MANUFACTURING AT LOW UNIT COSTS. IMAGINE A FACTORY THAT IS FLEXIBLE, GOING FROM MAKING A CAR PARK TO A DEFENSE PART BACK TO BACK IS DIGITALLY DRIVEN, BUT IT ALSO HAS A LOW UNIT COSTS ON BOTH OF THOSE ITEMS. THAT WAS OUR THESIS. WE SPENT EXTERIOR IS BUILDING THAT PLATFORM. WE RAISED OVER A BILLION DOLLARS INTO THE BUSINESS. A GREAT AMERICAN INVESTORS THAT ARE DEFENSE FOCUSED, HAVE SOME BLUE-CHIP PE INVESTORS, STRATEGIC INVESTORS AS WELL. FOR US, IT'S ALL ABOUT BUILDING MORE FACTORIES. LONG BEACH IS OUR SECOND FACTORY COMING ON LINE. THAT WILL BE 30 THOUSAND AIRFRAME CAPACITY PER YEAR. ED: DECISION TO GROW IN CALIFORNIA VERSUS SOMEWHERE ELSE IN THE COUNTRY. LUKAS: WE ARE GROWING IN MULTIPLE STATES, SO THAT IS NOT A DECISION THAT WE NEED TO MAKE ONCE PAYMENT FOR LONG BEACH, THAT WAS CUSTOMER LOCATION, TALENT, AND WHEN WE DO THESE ADVANCED PROCESSES, 400,000 SQUARE FEET, WE CAN MAKE 30,000 AIRFRAME'S YEAR. ED: WHAT IS THE PERMANENCE OF THIS SHIFT? INSTEAD OF THE PRIMES REACTING TO TIMES OF WAR, IS IT FUNDAMENTALLY A CHANGE OF HOW THE BUSINESS WORKS? LUKAS: YES. I THINK THIS IS A LONG-LASTING DEFENSE CYCLE. WE HAVE SEEN WHAT MODERN WARFARE NEEDS. WE SEE THE PRICES THAT THE DEFENSE DEPARTMENT IS ASKING FOR THOSE SYSTEMS. WE SEE COMPETITION COMING IN IN TERMS OF NEW PLAYERS. THIS IS A CYCLE THAT IS HERE TO STAY. I THINK YOU'LL SEE MORE INNOVATION, VOLUMES GO UP, PRICES GO DOWN. FOR US, WE VIEW RESILIENCE AS WICKS ABILITY. BEING CROSS INDUSTRY ALLOWS US TO TAKE A CHOPPY DEMAND SIGNAL, WHICH AT TIMES DEFENSE IS, AND MAKE REALLY GOOD ECONOMICS OF IT WHICH ALLOWS US TO DELIVER AT A STEADY VOLUME AND A GOOD COST. ED: LUKAS CZINGER, DIVERGENT CEO, THANK YOU FOR BEING WITH US HERE. COMING UP IN THE PROGRAM, BOEING BEATS OUT NORTHRUP TO PRODUCE THE NAVY'S NEXT TOP GUN FIGHTER. WE WILL TALK ABOUT WHAT THAT MEANS FOR THIS INDUSTRY, THE LANDSCAPE, AND THEIR BUSINESS IS COMING NEXT. THIS IS "BLOOMBERG TECH." ♪ ED: EARLIER THIS WEEK, THE PENTAGON ANNOUNCED BOEING BEAT NORTHRUP TO PRODUCE THE NAVY'S NEXT TOP GUN FIGHTER JET, AN AWARD VALUED AT MORE THAN $20 BILLION. BLOOMBERG INTELLIGENCE WRITING THAT "BOEING'S CONTRACT STRENGTHENS ITS COMBAT AIRCRAFT FRANCHISE, FURTHERING THE TURNAROUND IN ITS DEFENSE BUSINESS." LEAVE IT UNTIL IT IS GLOBAL HEAD OF AEROSPACE AND DEFENSE RESEARCH GEORGE FERGUSON IS WITH US. I AM HERE IN SKUNK WORKS AT LUCKY BUT THERE'S A LOT HAPPENING THIS WEEK. GO TO YOUR THESIS ON THIS PARTICULAR CONTRACT THAT BOEING HAS COME OUT ON TOP OF. GEORGE: THE THESIS IS THAT BOEING'S FIGHTER PROGRAM FRANCHISE WAS TRADITIONALLY PRETTY STRONG BUT HAD GONE THROUGH SOME ROUGH YEARS, WAS NOT ON THE F 30 IT WAS ON THE 42 BUT I WAS LIMITED PRODUCTION. THE PRIMARY NAVY STRIKE FIGHTER RIGHT NOW, AROUND 1000 OF THOSE AROUND. F-15 ARE A VERY STRONG PART OF THE FRANCHISE, NON-STILT TWIN ENGINE FIGHTER, MOCK 2.5. RECEIVED USE IN THE MIDDLE EAST. VERY CAPABLE FIGHTER. THEY ARE LACKING IN THIS STEALTH TECHNOLOGY BECAUSE THEY WERE NOT ON THE MODERN STEALTH FIGHTER ANYMORE. NOW, THE PENTAGON HAS GIVING THEM THE TWO NEXT-GENERATION STEALTH FIGHTERS, THE 47 FOR THE AIR FORCE, AND THEN THE NAVY FIGHTER. I FEEL LIKE THEY'RE FRANCHISE HAS GONE FROM A LOT OF CONCERN AROUND IT TO REALLY INTEGRATE POSITION IF THEY EXECUTE THE PROGRAM. ED: YOU AND I HAVE TALKED ABOUT YOUR RESEARCH ON LUCKY. I AM HERE AT STUMP -- SKUNK WORKS. YOU ARE BULLISH ON A GROWTH STORY THAT IS MORE ABOUT MISSILES THAN AIRCRAFT. TALK A LITTLE BIT ABOUT THAT. GEORGE: MISSILES ARE SUPER IMPORTANT RIGHT NOW, WE ARE SEEING THESE SOPHISTICATED MUNITION BEING IN SHORT ORDER. WE JUST WATCHED A DRUMBEAT OF ORDERS GO TO RAYTHEON. ABOUT $70 BILLION OF THAT IN THE LAST MONTH AND I HAVE. LOCKHEED AS WELL HAS GOTTEN A NUMBER OF THOSE. THESE ARE THE TWO PRIMARY MANUFACTURERS OF THINGS LIKE THADD, WHICH ARE SUPER IMPORTANT TO MODERN DEFENSE. THE BIG PROGRAMS ARE USUALLY THESE FIGHTER PROGRAMS AND BOMBER PROGRAMS THAT ARE WORTH A LOT MORE MONEY OVER THE LONG RUN. BOEING DID PRETTY WELL HERE. ED: GEORGE FERGUSON A BLOOMBERG INTELLIGENCE, THANK YOU VERY MUCH INDEED. THAT DOES IT FOR THIS EDITION OF "BLOOMBERG TECH." WE ARE AT SKUNK WORKS, LOCKHEED MARTIN'S ADVANCED FACILITY. IT'S A STORY ABOUT A COMPANY THAT WANTS TO TRANSITION FROM BEING THE WORLD'S BIGGEST DEFENSE CONTRACTOR TO BEING THE BIGGEST DEFENSE TECHNOLOGY COMPANY IN THE WORLD. A PART OF THAT IS HOW THEY ARE WILLING TO WORK WITH OTHERS INCLUDING RIVALS. WE TALKED A LOT ABOUT HOW THEY ARE USING AI, WE TALKED A LOT ABOUT AUTONOMY. RECAP ALL OF THOSE CONVERSATIONS ON THE PODCAST. YOU KNOW WHERE TO FIND IT ON BLOOMBERG, APPLE, SPOTIFY. OUT THERE AS WELL IS THE BIG CONVERSATION THAT WE HAD WITH THE LOCKHEED MARTIN CEO JIM TAICLET WHICH YOU CAN FIND AGAIN ON BLOOMBERG.COM AND YOUTUBE. CLASSIFIED ACCESS TO CLASSIFIED. LIVE FROM SKUNK WORKS, THIS WAS "BLOOMBERG TECH." ♪