How Silicon Valley is changing warfare

0:01The Lord of the Rings, my favourite franchise ever, is having a bit of a moment right now. There's reports of a new video game, there's a new film in the works. Is anyone else excited about this?

0:15Hello and welcome to another episode of CNBC's The Tech Download. I'm Arjun Kharpal, Senior Technology Correspondent here at CNBC. Why was I talking about Lord of the Rings? Well, because the focus of this episode is Anduril. Anderil is a legendary sword from the Lord of the Rings. And you'll hear a bit more about that in the episode because I speak to Brian Shimp, who's the co-founder and CEO of Anderil. Now, Anderil is a defense technology company. If we think about the last few decades, defense industry hasn't changed at all really very much. It's dominated by a few big players, building highly complex, very expensive systems over long periods of time, often costing billions and billions of dollars.

0:58But that model is really now being challenged by a handful of startups that are popping up. A new generation of companies really mainly coming out of Silicon Valley with that Silicon Valley mindset are trying to rethink how the technology is built and how it's being deployed. And instead of focusing just on building hardware, which is obviously a key part of the equation here, they're focused on the software side, artificial intelligence, and how to manufacture this kind of product cheaply and quickly as well. No doubt it has been a state of geopolitical flux. There have been multiple wars around the world.

1:31And we've seen during those conflicts that the nature of warfare itself is also changing from these large, expensive platforms to more nimble, cheaper, smaller and faster, at times autonomous systems. Conflicts in places like Ukraine, for example, have shown just how important things like drones, data, speed have become. And all of this really is pushing defense closer to the world of technology and where iteration, faster iteration, software, scale all matters a lot. And that's really where companies like Anduril come in. And as I said, today in this episode, I'm speaking with Brian Schimp, who's the CEO of that company, about how they're trying to reshape the defense industry and what the future could look like in an age of AI.

2:24Brian, thanks so much for joining me on the Tech Download. Hey, thanks for having me here. So, Anduril, Lord of the Rings fans out there, Aragorn Sword in the Lord of the Rings, forged from the Shards of Narsil, the blade Isildur used to chop the ring finger off of Sauron. Why the name? Well, we're all nerds, and the Lord of the Rings theme is very rich. but the sword, Andrel in Elvish means flame of the West, which we thought was a pretty good and appropriate name for what we're doing. Yep, and we'll get into why. Do you have a favorite? I mean, Tolkien named a lot of things. Yeah. Everything from the horses to the trees.

3:09Do you have a favorite sword? Is it Andrel? I think it would be Andrel, would be the favorite sword. I mean, I'm not a huge expert in all the swords, but, you know. It's up there. It's definitely up there. It's way up there. Mine is Glamdring, Gandalf. Ooh, that is a good one. He's my favorite character. Yeah, he is the best one. So let's get into business now. Anderil has gone from sort of a startup to this$61 billion defense tech company in less than a decade. Over that time, you know, what's changed? Is it the technology, the threat environment, the geopolitics, all of it? What do you think has been some of the biggest factors that have driven that growth?

3:44Yeah, I mean, so go back to 2017, right? It was kind of the end of the counterterrorism era. The view was that when we started this, everyone was like, well, there's never going to be wars again. Why would you even work on this? The idea that China was an adversary was highly controversial. And so it was a very, very different time when we started the company. And you kind of fast forward through a couple of different things happening that I think all converged to make us accelerate a lot faster than we anticipated. Number one was the geopolitical shift. So I think this is probably the biggest.

4:22So U.S. pivot to China caused them to really look at whether the force structure and the way they were operating was going to be successful. And the conclusions when they went through that were kind of not great, right? Like, you know, aircraft carriers, highly at risk. A lot of the air platforms, highly at risk. So it's a really hard problem. So it was a huge relook in the military side. And then on the geopolitical front, you had the conflict with Ukraine, the prominence of, you know, kind of drones and the Iranian Shahed drones, which are effectively low cost cruise missiles that are creating a huge amount of issues.

4:59So you had all these geopolitical and, you know, military technology shifts. And then combined with that, you had two decades of consolidation and just frustration with the current system. So a lot of the traditional contractors, you know, just if you were to run any betting market on this, like what's the odds that this program is going to be over budget late and, you know, not meet what we wanted is like everyone knows about 100%. So just the amount of frustration in the system that the government wasn't getting, you know, best value for money or getting things in a timely way was really, really high.

5:31Right. And so the opening to try something different was there. So I think all those things converged in a way that we were able to be there, started it when it was highly unpopular to do defense. All our VCs had to change their LP agreements to get people to allow them to invest in defense. It was just not allowed. It was only a couple of years ago that we could even have European investors. So it was a very, very different time. and doing something when it's unpopular tends to be a pretty good time to do it because no one else is doing it, right? And you get the first mover advantage. So it worked out quite well.

6:12We've made an immense amount of progress, and I think fundamentally we've been able to just deliver. Like my read is delivery is the most scarce thing in defense. If you just deliver on time, do what you say, it's really good. It's really rare. And so it's just a different environment than a lot of these competitive tech environments where just executing well and being in there at the right time made a huge difference. How would you describe what you do? Because partly it's around weapons and hardware, but there's also a software component to what you do. So what's the best way to describe what exactly Enderil does and how you're a tech company or a tech defense company rather than just sort of a pure play defense company?

6:55Yeah. So a big part of this is, you know, play it forward 20, 30 years. It feels inevitably true that the vast majority of aircraft, of ships, of land vehicles, like these things have to be more autonomous and less crude. And you're just going to have this inevitable shift that occurs where it's going to be more robotic. And, you know, with that, its sensors are getting cheaper. The number of, you know, like cost to orbit is cheaper. The cost to build a new aircraft is going to go down even more with AI. So all these, the ability to introduce new platforms goes up. The cost to manufacture them is going to come down.

7:32And so the reality is you're going to have thousands and thousands of systems on the battlefield. That is an overwhelming amount of information. It is nearly impossible for humans to coordinate that and understand what is going on. And so we've built a lot of software around what we call Lattice, but really the idea is what does that operating system and infrastructure to enable this modern connected battlefield really look like? And how do we fuse in autonomy and all these different aspects to it so that humans can do what they're really good at, which is make kind of high consequence, high contextual decisions.

8:07And we take a lot of the more mechanical aspects and pull it all together. So we've infused AI into every level of this. How do we process sensor data? How do we surface up the right decisions for humans to make? If we networked everything, we've made it all sort of very resilient, very interconnected. And so that foundational tech has really mattered and it enables us to bring really sophisticated systems to bear quickly where we can make a relatively simple cruise missile, say, for example, but we can just load it with this advanced software immediately and constantly enhance it and refine it over time.

8:46When people think of, I guess, AI and autonomy when it comes to weaponry, people sort of, I think, have this idea of weapons that sort of can carry out attacks on their own, for example, or, you know, very little human supervision. And there's this sort of idea around it. When we talk about AI and autonomous weaponry, you know, what exactly are we talking about from your point of view? So there's nobody wants the insane version of this. Like nobody in the military is talking about it. Nobody thinks it's a good idea. But the reality is we already have lethal autonomous weapons. They exist. So you think about like a torpedo.

9:26How does a torpedo work? You say here's a region. And if anything looks like it matches this acoustic signature in this region, that's a military target. We have anti-radiation weapons where the idea is if I shoot a missile at an area, if something is emitting in that area that looks like a Russian radar, that's a military target. So these have existed since like the 1970s, right? This idea that you're going to have machines in a bounded way make decisions, but you know what they're going to do. They're going to be predictable and you can kind of constrain them in a smart way. That's always been true.

10:02Like that's been true for a very long time. And AI enables you to make this more precise, more discriminating, more accurate. So, you know, the counter view of, well, we shouldn't have AI and weapons to me is just a deeply unethical view where you're saying, oh, actually, we should have dumber weapons. We should have weapons that don't make smart decisions. You're like, well, that seems like a strictly worse world to live in. But you want to put the right bounds on it. Right. And you want to say these things are still controlled by accountable people. and we still have the mechanisms that these are predictable, they're tested, we know what they're going to do, they just are smarter.

10:40And so you're just talking about a sliding scale of really how much discretion do we give it. The other dimension to this is you just look at the volume of strikes that the U.S. had to conduct in the Iranian conflict or how much Ukraine is conducting. That is an overwhelming amount of decisions that are being made every day. Using AI where you have the best reviewer possible looking at your decisions and, you know, kind of calling out errors in your decision making, that seems like, again, a very ethical, responsible thing to do. But again, the idea is fundamentally the AI is there as a tool for the human decision makers.

11:20The AI is not a person. Like the AI is not making these decisions. It is about enabling humans to make better decisions because the military has a system that the battlefield commanders are accountable and responsible for what happens for their employment of weapons. And that is a good system. We like that system. And so AI can massively enhance the precision that they can operate at. You said no one wants the insane version of this. no doubt and so when you think about what you build at anduril is there a is there a red line or something that you know we just won't ever build yeah so like the the fundamental thing is uh we have principles around how we think this should work right which is very much around um human supervision of decision making um you know robust uh you know independent evaluation that we have internally of how the systems are actually performing um there's kind of a set of guiding principles around these things.

12:16Then our responsibility as technologists is to also say when something is just not going to work, right? So, you know, we've had people come to us and say, hey, I want to do facial recognition from five kilometers away. And we're like, it just literally won't work. It's like, it will not be responsive. We can't responsibly do this. The error rate's too high. This isn't going to give you what you want. Like, this is not a good idea. And so the, you know, our view of this is, you know, we do not want tech bros in charge of making military decisions. Like, it seems really nice. It seems great to say all these things, but we're not actually responsible for the safety and security of the nation.

12:55And when you are responsible for that, the decisions are a lot more gray and a lot more difficult. So me being here and pontificating about all the ethics, you know, it's like, it's great. It's talking from the cheap seats. The reality is we need to be responsible as technologists. And then the elected officials are actually the ones accountable for making these hard decisions. And we need to empower them with the best information. We need to do it responsibly. But, you know, fundamentally our view is, you know, tech people articulating their philosophical positions on how national security should be done.

13:30it should count for about zero.

13:36When people hear the phrase AI in war, they're often thinking about autonomous robots making these life and death decisions on their own. But that isn't actually where the transformation is happening. Increasingly, AI is sort of becoming this operating system of the modern battlefield, helping militaries process enormous amounts of information and coordinate these complex operations that humans alone simply can't. But the human is there, of course, making those decisions, being formed by those decisions as well. So if we think about AI, that could mean connecting thousands of drones, aircraft, ships, all of this different data, processing it, bringing it all together and understand what's happening to allow militaries to respond far more quickly than before.

14:21And again, those recent conflicts we've mentioned before, including Ukraine, have highlighted why this matters. Cheap drones, constant surveillance, overwhelming volumes of battlefield data have made modern warfare dramatically more complex. And the challenge is no longer collecting the information. It really is sort of making sense of it fast enough to act. And I think as that complexity grows, that's where greater autonomy becomes less of a choice, really, more of an operational necessity. not because militaries necessarily want to remove humans from the decision making process, but because they simply can't keep pace with what's happening, that scale of modern conflict, really.

15:02And of course, that doesn't mean AI is going to replace human judgment. Instead, I think one of the biggest questions facing militaries right now is to actually where to draw the line. At what point does this sort of AI go too far? You know, how much authority should AI have? which decisions should always remain with humans? And ultimately, who is accountable when AI becomes part of that decision-making process? Those are exactly the kind of questions that companies like Anduril are now helping governments to grapple with.

15:37Executive Decisions is the new podcast from CNBC where I ask powerful leaders about their decisions that changed everything. I'm Steve Sedgwick. Here's the CEO of the London Stock Exchange Group, Julia Hoggett. There is no justification whatsoever for not doing the right thing, even if the right thing is hard to do. Which also means that if the context changes or the information changes, it is absolutely fine to also change your mind. That's Executive Decisions with me, Steve Sedgwick. Get it wherever you're listening to this. So beyond AI in sort of the weapons themselves, how is Android as a company using AI in things like weapons development?

16:13There's been so many advances on models. And we're talking about digital twins, this idea of being able to create a digital world that represents and test things in that digital world before they get to real life. So many different parts of manufacturing design have emerged in the world of AI. How much AI are you using in terms of actually designing weaponry and future products? So there's the obvious kind of coding agents and all of that. We've been heavily adopting that. You know, I was talking with another tech CEO who was just like, no, dude, I'm a coder again. It's great. So I've got like three cloud code sessions ripping right now.

16:50It's great. So that side is kind of a no brainer. But then we're seeing a ton of progress on both the mechanical electrical design. So the ability to very rapidly do all the analysis tools that would take like a cluster of machines two weeks to run like computational fluid dynamics or anything. these things. There are three different companies making AI enhanced versions of this that simplify the process and run it about a thousand times faster for 99 % of the accuracy. So it's great. You know, we're seeing a ton on the manufacturing side. There's three different startups that we're working with that are applying, you know, like work instructions, one of those tedious things to construct.

17:28You literally have like highly trained engineers who are sitting there like generating PowerPoints by like blowing out CAD drawings. You're like, okay, this is like no-brainer AI automation. So the ability to rapidly introduce new products, to, you know, kind of get all of the coordinated, you know, work instructions, you know, bill of process, all those things on the manufacturing side is massive. So we're seeing it kind of across the board where we're seeing a ton of benefit there. And then the amount you can collect on just like telemetry of how your systems are performing and then to be able to actually mine that efficiently.

18:04You know, I can contrast it to what you have to do normally, where it's like an engineer has a hypothesis that takes them two days to run down. Great. Now I can spin up 200 hypotheses that this thing is generating, that it's constantly running down to assess, you know, are my systems working? Where are the reliability issues? Anything like that. So it is just a, a, the volume of work that you can accomplish, um, the amount of leverage you can get on the engineers and production folks in terms of what they're able to do, where they were just constrained by hours in the day before. Just massive.

18:35You mentioned manufacturing as an area where sort of AI, you are seeing positive impacts from that. You've got huge manufacturing capabilities over in the US. What are you doing differently in terms of manufacturing with Anduril versus, you know, historically how defense companies have operated? Is it around cost and automation? Yeah. Where are you trying to see, you know, position yourself differently? Yeah. Yeah. The biggest thing is supply chain, and it's really who you pick in your supply chain. And so the traditional defense world has been kind of these high pedigree modules that you assemble into.

19:11You get your avionics module, you get your actuator module, right? And these things are kind of very slow to change, relatively low volume, very expensive. But in this uncrewed world, in this autonomous world, it doesn't need to have as much pedigree, right? Like you can take a little more risk on what these things are. And so we've really pushed hard on pulling a lot of the design in-house. So we design our own avionics. We design our own actuators. And then that allows us to now go out to a much broader base of suppliers where I can work with the folks supplying automotive, right, on metallic parts, circuit boards, on composites, like all these different things, and be able to tap into a much larger supply base that is kind of more commercially viable, taking on best practices in more competitive environments.

20:06And that's been huge because that enables us to scale very, very quickly where we can tap into this much bigger and much more responsive supply base than I think has typically been available in defense and aerospace. So, you know, that's that's been a great kind of strategy for us. And then you have a bunch of defense exotic stuff like when you start talking about like solid rocket motors and exotic infrared detectors, like those are things that just like there isn't a commercial supply base for. Those we've largely pulled in-house. And so we've acquired a company that does solid rocket motors, advanced imaging technologies, electronic warfare pieces.

20:45We've pulled a lot of those in-house, and we do a lot of that production ourselves. And so it's enabled us to control our destiny on this, where we can invest in the capacity that we need. We can bring more automation to the process, like all those things that have really started to pay out for us. because just being able to assure that you have the supply to ramp quickly is really key. So we just signed a contract with the Pentagon to ramp from basically zero to 1 ,000 cruise missiles in a year. And then it's 1 ,000 a year minimum for three years. 1 ,000 will be more cruise missiles than have ever been produced in the history of cruise missiles.

21:23So the amount that we're producing very, very quickly is, I think, enabled by the fact that we've thought about the scalability of supply chain so much. And that's the biggest aspect of it. To use a slightly crude analogy, I mean, when you look in the consumer electronics space, a company like Apple, right? And we talk about owning your stack, right? Owning as much of the technology that goes into your products on both the hardware and software side, as much as you can. Is that a similar kind of model you're trying to replicate? Yeah. I think the control your destiny is probably the right way to think of it.

21:59In the defense world, it ends up a little bit more, you can't run the walled garden strategy that Apple does. It's just not going to be possible. You end up kind of living in more of an Android world, no matter what, on the software side, you're always integrating with other people's hardware. And that's great. We love it. And that's a key part of the strategy. So being kind of open and accessible has worked. So we run our software on other people's hardware. We run our hardware as other people's software. That's fine. We'll make it work. But I think from the manufacturing and production side, that degree of having the option to control your supply chain, your scalability, that's critical.

22:38On a specific component, semiconductors in particular, there's all different types of flavors of semiconductors that go into weaponry. How much of the semiconductor stack are you focusing on within Anduril? Are you looking to design as many of the chips that you use? or are you happy with kind of third party? I mean, when it comes to the AI space, we could spend, you know, any amount of money and the world will be exactly the same place in five years. Right. It's like, it's just the reality is like NVIDIA, you know, all the inference chip investments, all these things so far surpass anything that we could plausibly do that we're much better off as a taker of what actually works.

23:23because the other reality with defense is the volumes are quite small. So it's like, okay, so say we make 1 ,000 cruise missiles, we'll make 5 ,000 or 6 ,000 next year. That is not a large number by any consumer standard. So we invariably end up in this sort of higher mix, lower volume world. So custom chips can pay out. We do it where we have to. We do a bunch of custom silicon. But on the whole, you're much better off taking commercial options when they work. When it comes to sort of the supply chain as well, as you look at it, when we look kind of globally, there are bottlenecks all over the place in various supply chains.

24:00I mean, you look in terms of what's happening in data centers, you look at memory, for example, as a key bottleneck, the manufacturing capabilities out of some of the semiconductor factories and fabs. Where are the supply chain bottlenecks right now in your industry? I know Rare Earths has become a huge talking point geopolitically as well. What for you are you seeing as key flashpoints here? Yeah. So, you know, we're subjected to the same demand pressure or supply pressure on, you know, DDR4 and 5 memory, you know, all these things like SSDs. It's a mess. The reality there, though, is that particularly in the U.S., they have a system that puts defense orders at the front of the queue.

24:40That's just kind of how it works. It's great. So that part's maybe slightly less problematic for us or is more solvable just via kind of policy. The much, much bigger issue is that China has intentionally taken a strategy over decades of strategically choke pointing key supply chain items. So the rare earth magnets is one that came up during the trade negotiations that they basically have locked down export of magnet manufacturing technologies, as well as controlling the outflows of those magnets as a negotiating lever. Well, that's one of probably about 30 things they're doing this on. Another one that's come up is germanium.