"SEWIP" -- the Surface Electronic Warfare Improvement Program -- is a bland-sounding acronym for a U.S. Navy system that doesn't often register on defense investors' radar.
But overlooking it could be a mistake.
Over the past decade, Lockheed Martin (LMT 0.28%) has quietly built up a tidy franchise selling SEWIP Block 2 systems to the Navy for early detection of missile threats to U.S. warships. More recently, though, Northrop Grumman (NOC 0.10%) has developed a new version of SEWIP that's bigger, better -- and could be worth more money than ever.
What is SEWIP Block 3?
The evolution of SEWIP Block 2, built by Lockheed, into SEWIP Block 3, built by Northrop Grumman, represents a quantum leap in capability for the program -- a move from defense to something very like offense. Whereas SEWIP Block 2 was designed to enhance a ship's "situational awareness" of incoming threats, SEWIP Block 3 incorporates electronic warfare capabilities that can go out and destroy those threats.
Northrop Grumman explains:
"The AN/SLQ-32(V)7 SEWIP Block 3 system protects surface ships from anti-ship missiles, providing early detection, signal analysis and threat warning." But more than just that, it includes "non-kinetic electronic attack options" and "an unlimited, non-kinetic, soft-kill magazine to defeat inbound threats."
Basically, once SEWIP Block 3 detects an incoming threat, such as an anti-ship missile, it responds by emitting tight blasts of precisely controlled radio-frequency energy -- attacking as many targets as necessary, simultaneously, and continuing to fire as many times as necessary to defeat all threats. And because this is an energy weapon, SEWIP Block 3 "basically [gives a ship] an unlimited amount of 'bullets' you can use to defeat those anti-ship missiles," Mike Meaney, Northrop's vice president for the SEWIP Block 3 program, explained in an interview with website The War Zone.
How much does unlimited ammo cost?
Lockheed has built and sold more than 100 SEWIP Block 2 systems, but Northrop's contract for the successor system could be even bigger.
In the company's first SEWIP Block 3 contract, awarded in 2020, Northrop won $101 million for a "follow on production lot" of three weapons systems (so, approximately $33.7 million per unit). The company noted that additional orders could raise the value of the contract to at least $1.2 billion as SEWIP Block 3 is installed across the Navy's fleet of 70 Arleigh Burke-class (DDG 51) destroyers.
But according to DefenseNews.com and other sources, Northrop Grumman is tailoring SEWIP Block 3 so that it can be installed both aboard larger vessels -- cruisers, amphibious assault ships, and aircraft carriers -- and smaller warships such as frigates and littoral combat ships. Equipping just the non-destroyer portion of the U.S. battle fleet with SEWIP Block 3 would more than double the size of the addressable market for this system. But the Navy also plans to add as many as 20 new Constellation-class frigates and up to 30 light amphibious warships to its fleet -- tripling the number of hulls that could carry the system.
If SEWIP Block 3 can be both scaled up to protect a ship as large as an aircraft carrier and scaled down to fit aboard a frigate, Northrop could end up selling more than 200 Block 3 systems in total, making this program twice as big as the Lockheed program that preceded it.
What it means to investors
How much might SEWIP Block 3 be worth to Northrop?
Assuming constant prices, $33.7 million per unit times 200 units implies that an expanded SEWIP Block 3 program might be worth as much as $6.9 billion to Northrop Grumman over time. It might be less than that -- if discounts are given for volume production for example -- but probably not more. Still, as part of the company's mission systems division -- its most profitable business unit with an operating profit margin of 15.6%, according to data from S&P Global Market Intelligence -- a hypothetical total program value of $6.9 billion for SEWIP Block 3 could easily generate in excess of $1 billion in profit for Northrop Grumman just from building and installing the systems. And that's to say nothing of the revenues and profits it could book from servicing and upgrading them over time.
Long story short, SEWIP Block 3 isn't a catchy name, and it's not a program that gets a lot of attention. But if I'm reading these numbers right, it could be a very big deal -- both for the Navy and for Northrop Grumman.