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General Dynamics Acquires OK Labs

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General Dynamics Corporation (GD) announced that it has closed the acquisition of Open Kernel Labs, Inc. (“OK Labs”) for an undisclosed amount. OK Labs, a privately held corporation, is the primary provider of virtualization software for securing wireless communications, applications and content for mobile devices and automotive in-vehicle infotainment systems.

“Defense-Grade” solutions provided by OK Labs will allow separation of corporate data and applications from a user's personal data stored or accessed on the same device safely. This will add to the company’s long history of providing encryption technology to protect voice and data communications at confidential level.

Ok Labs will now become a part of General Dynamics C4 Systems, a subsidiary of General Dynamics Broadband. As OK Labs is capable of providing automotive virtualization solutions by enabling the separation of dashboard applications from core automotive functions, the acquisition will expand the company’s ability of providing secure mobile devices for public safety, civilian, military and commercial customers and in-vehicle infotainment systems (“IVI”) for the commercial market. It will also augment the company’s potential to secure computing on commercial handheld devices in order to fulfill the needs of government and military customers.

In June this year, the company had added to its C4 Systems portfolio by expanding its commercial networking solutions through the acquisition of IPW Holdings, Inc., the parent company of IPWireless, Inc.

The company is also adding to the portfolio of other segments. Recently, General Dynamics has also completed the acquisition of Gayston Corporation’s defense operations for an undisclosed amount. Gayston Corporation is a privately held company, which is a supplier of precision metal components that are used in several munitions programs. Besides, manufacturing rocket motor tubes for the U.S. Army's Hydra-70 air-to-ground rocket program, Gayston provides liners and cartridges for 40mm ammunition rounds and components for 60-120mm mortar rounds to its other customers. Gayston's defense operations will become a part of General Dynamics Armament and Technical Products, which is a unit of Combat Systems. The acquisition will expand General Dynamics’ critical manufacturing capability to produce high-precision parts in large quantities at a lower cost.

We believe that these acquisitions will make the company well positioned to earn more profits. Moreover, going forward, the company’s revenue exposure that is spread over a broad portfolio of products and services in business aviation; combat vehicles, weapons systems and munitions; shipbuilding design, repair and construction; and information systems, technologies and services will keep the overall growth momentum steady.

However, the threat of budget cuts and the risks related to the execution of key projects remain a matter of concern. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

Based in Falls Church, Virginia, General Dynamics engages in mission-critical information systems and technologies; land and expeditionary combat vehicles, armaments and munitions; shipbuilding and marine systems; and business aviation.

Some of its main competitors are Lockheed Martin Corporation (LMT) and Northrop Grumman Corporation (NOC).

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