Microsoft wins U.S. Army contract for augmented-reality headsets, worth up to $21.9 billion over 10 years

The Pentagon announced that Microsoft has won a contract to build more than 120,000 custom HoloLens augmented-reality headsets for the U.S. Army. The contract could be worth up to $21.88 billion over 10 years, a Microsoft spokesperson told CNBC on Wednesday.

Microsoft shares moved higher following the announcement.

The deal shows Microsoft can generate meaningful revenue from a futuristic product resulting from years of research, beyond core areas such as operating systems and productivity software.

It follows a $480 million contract Microsoft received to give the Army prototypes of the Integrated Visual Augmented System, or IVAS, in 2018. The new deal will involve providing production versions.

The standard-issue HoloLens, which costs $3,500, enables people to see holograms overlaid over their actual environments and interact using hand and voice gestures. An IVAS prototype that a CNBC reporter tried out in 2019 displayed a map and a compass and had thermal imaging to reveal people in the dark. The system could also show the aim for a weapon.

“The IVAS headset, based on HoloLens and augmented by Microsoft Azure cloud services, delivers a platform that will keep soldiers safer and make them more effective,” Alex Kipman, a technical fellow at Microsoft and the person who introduced the HoloLens in 2015, wrote in a blog post. “The program delivers enhanced situational awareness, enabling information sharing and decision-making in a variety of scenarios.”

The headset enables soldiers, fight, rehearse and train in one system, the Army said in a statement.

The U.S. Army and Pentagon did not immediately respond to requests for comment.

The deal makes Microsoft a more prominent technology supplier to the U.S. military. In 2019, Microsoft secured a contract to provide cloud services to the Defense Department, beating out public cloud market leader Amazon. Amazon has been challenging the contract, which could be worth up to $10 billion, in federal court.

Some Microsoft employees asked the company to hold off on submitting for the cloud contract, and similarly, a group of employees called on Microsoft to cancel the HoloLens contract. “We did not sign up to develop weapons, and we demand a say in how our work is used,” the employees wrote in an open letter regarding the HoloLens contract.

Days later, Microsoft CEO Satya Nadella defended the Army augmented-reality project, telling CNN that “we made a principled decision that we’re not going to withhold technology from institutions that we have elected in democracies to protect the freedoms we enjoy.” The Army, meanwhile, has suggested the augmented-reality technology could help soldiers target enemies and prevent the killing of civilians.

— CNBC’s Amanda Macias contributed to this report.

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