Chelmsford computer firm pushes envelope in defense

Mark Aslett, Mercury Computer Systems' chief executive, says the firm is ''refocusing on defense as the core of our business.'' (Wendy Maeda/Globe Staff)

No one knows how defense budgets will fare under the Obama administration, but Mercury Computer Systems Inc. of Chelmsford is banking on getting a greater share of military contracts and moving ahead on a profitable course, its executives say.

"Refocusing on defense as the core of our business is the way we're going," said the chief executive, Mark Aslett, 40, adding that defense work currently contributes two-thirds of the public company's annual revenues.

Last year, revenues were $209.9 million.

In January 1998, Mercury Computer went public on Nasdaq's national market.

Since beginning operations in 1983, Mercury has always had big slices of defense pacts because of its reputation for producing high-speed, high-performance computing systems, said Aslett, a Winchester resident who joined the company in November 2007.

However, a slowdown in defense spending in 2006 and 2007 plus being involved in some nondefense business areas has caused problems for the Chelmsford company.

For example, its earnings announcement for the second 2009 quarter ending Dec. 31 noted that the Visage Imaging business, whose growth had stalled, had been sold for an undisclosed amount to Pro Medicus Ltd., an Australian healthcare-life sciences firm.

Because of the unsuccessful imaging venture, restructuring costs, and other charges, Mercury Computer's net losses for the second quarter of 2009 were $17.1 million on revenues of $50.7 million. Net losses also piled up in fiscal 2006, 2007, and 2008: $16.2 million, $37.8 million, and $35.4 million, respectively.

Until 2006, there had been 58 consecutive quarters of profitability.

Shedding the Visage operation and launching new defense initiatives should enable Mercury to be on target for profitability "over the next two years," said Mark Jordan, who follows the company as a securities analyst for Noble Financial Capital Markets of Boca Raton, Fla.

In an effort to increase its visibility in Washington, a wholly owned subsidiary, Mercury Federal Systems, was formed last summer under the leadership of Terry Ryan, senior vice president and general manager.

The Washington operation has 12 employees; overall, the company has 645 employees.

Until recently, Mercury had been a subcontractor to defense giants such as Waltham-based Raytheon, Lockheed Martin, and Northrop Grumman, Ryan said, and much of this work has been for the Air Force and Navy. Mercury has been a major hardware-software contributor, for instance, to the Navy's AEGIS surface combat program involving radar and missile systems, Ryan said.

One of his main tasks now, he said, is trying to line up prime contracts for Mercury.

"So far, we've received five prime defense contracts, all geared to designing the next generation of computer architectures."

One new program with great potential for the armed services, according to Ryan and Aslett, is the so-called Converged Sensor Network, aimed at consolidating data from various sources, such as satellite imagery and sound, for enhanced battlefield intelligence.

The idea behind the formation of Mercury Computer was to produce computer processors for the medical market, said Jay Bertelli, 68, who founded the company with John Montelione. Both had been salesmen for Peabody-based Analogic Corp., a large security and imaging systems specialist.

"In 1983, we received a $250,000 development contract from Data General Corp. and had our first offices in Westborough, where Data General was headquartered," Bertelli said in a recent phone interview.

The company's first stand-alone office was in Lowell; it has been in Chelmsford since 1993.

Subsequently, Memorial Drive Trust of Cambridge invested $1.2 million in Mercury Computer, and the company was off and running, said Bertelli, who lives in Hollis, N.H.

Medical imaging eventually grew to be a $50 million-a-year business, but, as a smaller player, it became more and more difficult because of costs "to remain in the medical hardware" arena, he said.

But then there was defense work to fall back on, Bertelli said, adding, "It was always 50 percent of our total annual business."

Bertelli was chief executive until November 2007, succeeded by Aslett, and chairman from 2002 to November 2007. He was executive chairman from November 2007 to July 2008. "I now do some as-needed consulting for Mercury," he said.

(The whereabouts of cofounder Montelione, who left the company in 1987, are unknown, Bertelli said.)

As the company moves ahead on the military fronts, "our biggest challenge, and I'm sure we're up to it, is solving problems that can't be solved by conventional computer hardware and software," Aslett suggested.