Military Ops: A New Market For These 5 Tech Stocks

|
 |  Includes: BAESY, BBRY, DELL, GOOG, LDOS
by: Dividend Kings

People have been clamoring for smartphones ever since Apple (NASDAQ:AAPL) introduced the iPhone in 2007. Today, thousands of people carry smartphones or tablets. Now, soon the military may too.

Military operations require dependable information on locations, a way for communicating efforts and a way to share information in real-time - sounds like a regular Saturday night for most people as they use their smartphones or tablets to get directions, meet up with friends, and share pictures of the festivities.

Of course, the military versions of these items are considerably "hardened" and developed specifically for military usage by the Defense Advanced Research Projects Agency (DARPA), but many of the apps carry similarities to those used by civilians, such as DARPA's custom application that sports Google-like maps based on satellite images.

"Darpa, the defense research arm that contributed to the development of the Internet, has launched an effort called Transformative Apps under which it has developed a few dozen smartphone applications that work on a number of mobile devices it is evaluating," reports the Wall Street Journal. "In addition to mapping, the apps can do things like identify explosives and weapons and help navigate parachute drops" and they have shown marked success.

"During a battle in a village near Kandahar, Afghanistan, Lt. Kevin Pelletier used a tablet computer with a custom map application to direct soldiers' movements," continues the paper. "As thousands of rounds flew through the village near Kandahar, Lt. Pelletier used the device to more quickly direct the movement of his soldiers. Two days later, the village was cleared with zero casualties."

"It helped you orient weapons in a firefight," says Lt. Pelletier, a platoon leader in the 10th Mountain Division. "Without a doubt it helped cut casualties."

DARPA began handing out a militarized version of Dell (NASDAQ:DELL) Streak 5 tablets in the spring of 2011 and is currently pursuing a range of programs, approximately $50 million worth, to build networking prototypes that can be transferred to the military and ultimately become official programs used by hundreds of thousands of soldiers. So far, it has "launched three programs aimed at developing fixed and mobile wireless networking systems working with traditional defense contractors such as BAE Systems (OTCPK:BAESY) and SAIC (SAI) as well as start-ups such as Invincea and colleges including Carnegie Mellon University and George Mason University," reports the Wall Street Journal. "The idea is to create a more pervasive military wireless network and use it to connect drones and other sensors and relay real-time video down to mobile devices in the battlefield. Contracts for the networking projects are being given out this year."

Right now, more than 1,000 soldiers in Afghanistan use these mobile technologies and it continues to be rolled out to the troops. The Wall Street Journal says that "Mari Maeda, who heads up the apps initiative, expects to provide the capability to all U.S. Army units in Afghanistan."

This recent push by DARPA is nothing new, but rather just its latest effort to bring technology onto the battlefield. The organization has already developed several apps, such as WhoDat, which let soldiers take pictures and add notes to collect intelligence more easily and create "virtual lineups" on patrol. DARPA also has an app called TransHeat which allows soldiers to plot their movements with a GPS tracker. After a route has been taken over and over again, it turns orange, then ultimately red, as a warning for soldiers to take a different path to lessen the risk of an ambush.

There are still several limitations in the current technologies being employed by the government, writes the Wall Street Journal: "The phones weren't connected to the military's encrypted communications network, so soldiers still had to carry radios. There were also too many settings that needed to be customized. And the batteries lasted only for a day, so soldiers had to carry spares."

But these limitations could soon be gone for good. According to Businessweek, Google's (NASDAQ:GOOG) "mobile OS has been tapped for military use," thanks to its versatility, openness and low-cost. At the same time, several of Research In Motion's (RIMM) Blackberry devices have already been cleared for military use by the Department of Defense, writes Engagdet. These include the BlackBerry Bold 9900 and 9930, BlackBerry Torch 9810, 9850 and 9860, and BlackBerry Curve 9360.

"According to Jani Lyrintzis, vice president of special terminals at Elektrobit, 80% of the work necessary to build a military-grade smartphone is already available in the Android kernel," writes Businessweek. "Elektrobit completed the necessary software upgrades by adding secure middleware between the applications layer and the operating system, thereby preventing apps and users from compromising strict governmental security policies, Lyrintzis says. The rest consists of industrial design: Phones in the field need to be rendered rugged to protect them from the elements, and extra hardware-such as Raptor ID's biometric scanners-can be added, depending on a phone's intended use."

By building on the Android operating system, app developers, be they contracted or military, can streamline and simplify the app development process rather than having to develop an entirely new proprietary technology from scratch. "By utilizing existing smartphone technologies, contractors essentially become Android developers working on a multipurpose platform," says Lyrintzis.

Not only does this simplify the development process but it makes the application of the new technology even easier in that the Department of Defense need only install the app and suddenly they have a multi-tool that can read fingerprints, make calls, send text messages, take photographs, track location, surf the Internet and access government servers - even control an unmanned drone. The technology is in place for any of those functions. Now, it is just a matter of making sure that the apps and the hardware itself is up to the challenge of military use, has a low failure rate and is secure.

"Rather than enlist a developer to build a specialized expense-management app, commercial app developers could develop more secure versions of their existing apps for military smartphones," reports Businessweek. "There's probably not much software available in Google Play or other app stores that the DoD could use off the shelf; with security tweaks, a consumer app could be turned into a military-grade app," says Lyrintzis. "It may not be long before we see military-app stores popping up beside their consumer counterparts."

"We've seen a big reversal in the direction technology innovations are flowing," Lyrintzis says. "Previously, whatever technology was developed for the military eventually moved to the consumer market. About six years ago, the trend reversed."

I recommend investors looking to get in on the military app trend look toward companies like Google over companies like BAE Systems and SAIC. Keep in mind that when DARPA or the DoD sets up technology around a platform like Google's Android, it tends to stick with that technology for quite a while, making an investment in the company a solid bet in at least the medium term. In looking at investment opportunities from this angle, I recommend investing in the companies that provide the platform, like Google, Apple and Research In Motion. A big government push would likely help these three companies get big contracts with the DoD, which would be rewarding for investors. I do not recommend investing in the hardware companies like BAE Systems and SAIC, because that part can be much more easily converted.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.