White Paper

w w w. m r c y. c o m WHITE PAPER 4 Leveraging technology hotbeds and the commercial defense supply base to help support the Third Offset Thesis: The Third Offset can't become a sandbox of un- deliverable technologies. The idea of tapping technology centers like Silicon Valley and Boston for perspective is a good one. However, to really deliver on this vision the Pen- tagon needs to have capable and experienced commercial firms from within the defense industrial base. Historically there have been two major "offset" strategies. The first, famously promoted by President Eisenhower leveraged nuclear deter- rence as a way to gain military and technological advantage over would-be adversaries. The second offset, which gained strength during the 1980's Reagan era defense build-up, saw a focus on conventional munitions and the leverage provided by emerging digital microproces- sors and advanced sensors. Today, the emerging "Third Offset", is described well by Secretary Carter in his April 2016 Testimony before the Senate Appropriations Committee. The Third Offset Strategy means: … " demonstrating and seeding investments in new capabilities and concepts to counter advanced anti-access, area-denial challenges across all domains and in every region where they persist… It also means investing in and operationalizing our security by leveraging advances in cyber, space, electronic warfare…. And other areas." One important lever being deployed to drive Third Offset strategic advances has been the Defense Innovation Unit-Experimental (DIUx). Established in 2015 by Defense Secretary Ash Carter, the mission of DIUx is to leverage the Silicon Valley, Boston, and other tech center innovation hubs to help speed up the rate of innovation within the DoD. While the goal of DIUx is relatively simple, getting it off the ground has been somewhat difficult. The early growing pains of DIUx have led to what's being called DIUx 2.0. Secretary Carter announced an overhaul of DIUx this past May. Part of this overhaul includes new leadership and a clearer mandate around the kinds of technologies to be explored in support of the DoD. We applaud this effort and are not surprised it has had some early growing pains, like many start-ups. Even critics acknowledge it's too early to declare DIUx a misguided idea. We think it could result in very positive outcomes. However, we do see a flaw in the model. To have the DoD as the sole interface with technology hubs in Mountain View, CA and Boston, MA may be part of the problem. We believe that inno- vative commercial enterprises can assist in getting this start-up off to a more successful start. Commercial enterprises like Mercury and others are accustomed to innovating quickly, taking measured risks, balancing the need to deliver profits and innovation simultaneously, and meeting the complex needs of the defense industry. The DIUx and the broader strategies emerging around the Third Offset are achievable. We believe mid-tier commercial companies can help bridge the gap between the cultures of commercial technology companies in Silicon Valley, Boston and elsewhere and the DoD. Like many players in the defense industry, we welcome the opportunity to participate and help drive accelerated innovations leveraging the best the DoD can provide, the most advanced thinking from the tech- world, and the innovation tempered by pragmatism organizations like Mercury can provide. Pre- Integration Is Key Thesis: The Pentagon expects the final integrator to focus on delivering the platform on time and on budget. They need to be using the most affordable, domestically sourced solutions. The focus should be on building the best, most affordable, fully integrated platforms. However, this doesn't need to be, and can't effectively be done by a single party at all levels of integration. The defense industry has two seemingly conflicting challenges. The first is preparing for long-term strategic threats and adversaries while at the same time meeting the short term tactical need we face, with the technologies, equipment and platforms we have today. As a part of meeting this difficult challenge the DoD stood up, in August of 2012, The Strategic Capabilities Office or SCO. The mission of SCO is, among other things, to make sure we are effectively using and getting every dollar's worth of value out of technologies and platforms we already have in place. Beyond the obvious practical value of such an initiative it also serves to "buy time" for the longer term development work being done by commercial technology companies, the government labs, DARPA (Defense Advanced Research Projects Agency), and organiza- tions like Lincoln Laboratory. The DoD is paying more than lip service to this issue. For the proposed Government Fiscal Year (GFY) 2017 defense budget submission there is an $840 million line item to support SCO related efforts. This includes real world projects such as turning the SM-6 missile platform, already several years in service, into a more multi-purpose and versatile platform and weapons system. A surprising number of today's technology and platform solutions, while unique in many respects, actually rely heavily on common technology elements underpinning the solutions. As a result, one way of meeting the time and cost challenges associated with technology development and introduction is to develop modular technologies that can be used across multiple platforms, including both new and older platforms in need of the latest technologies and capabilities. Mercury is not a platform or end integrator business. We generally leave that to our customers, usually large prime contractors. We refer to the subsystems we develop as being "pre-integrated", which means the subsystem has all the needed technology elements, such as RF and Microwave content, digital and/or secure processing, along with open middleware and other application ready software already built-in. The customer can then utilize this pre-integrated solution as an underlying part of their new platform or platform modernization. The requisite classified applications, government IP, electronic warfare and counter- measure techniques , or other elements can all be easily integrated on top of the pre-integrated technology solutions. None of this would be possible without leveraging the best and most recent commercially available technology and open systems architec- tures. The government has been asking, through multiple directives, for the use of modular open systems architectures for over 22 years, but the defense industry has been slow to respond. Today however, with

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